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2016 (5) TMI 366 - ITAT DELHI

2016 (5) TMI 366 - ITAT DELHI - [2016] 48 ITR (Trib) 451 - TDS u/s 194J - non deduction of tds on bandwidth charges - Held that:- On the facts of the present case, it is our considered opinion that mere provision of bandwidth does not require human intervention. The payments made to service providers were for the use of bandwidth and the payments cannot be considered to be in the nature of managerial, consultancy or technical services so as to attract the provisions of section 194J of the Act. .....

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aid for utilizing the standard facilities which were provided by way of use of technical gadgets and the same does not involve technical services as there was only interconnection of the networks to the equipments of other service providers. Hence in the absence of any human intervention for providing bandwidth, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act. Accordingly, we reverse the finding of CIT (A) in this rega .....

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preferred by the Department against the order dated 22.06.2011 passed by the Ld. CIT(A)-XXX, New Delhi wherein through the impugned order for Assessment Year 2009-10 (Financial Year 2008-09) the Ld. CIT (A) has held that although the assessee was liable to deduct tax at source u/s 194J of the Income Tax Act, 1961 while making payment towards recurring and networking charges, it cannot be treated to be an assessee in default for not deducting tax u/s 194J of the Act where the parties to whom recu .....

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utions, which include internet service. The case of the assessee is that it holds Internet Service Provider - category A - licence from the Department of Telecom (DOT). Since the assessee did not possess international gateway (requisite license) for providing network connectivity to its customers, it made arrangements with Authorised International Gateway Providers (AIGP) such as MTNL, BSNL and Tata Communication Ltd. and having acquired the requisite bandwidth from the AIGPs, the assessee utili .....

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7; 1,68,90,867/-. However, in respect of payment of ₹ 27,02,5463/- which were paid to MTNL, BSNL, no tax u/s 194C was deducted for the reason that payments to these parties were exempt from deduction of tax at source. The Assessing Officer was of the view that recurring charges and networking charges were liable to deduction of tax u/s 194J of the Act and, accordingly, the assessee was treated in default. The Assessing Officer had based this view on the ground that every aspect of telecomm .....

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ervice . The Assessing Officer was of the opinion that since interconnect/access/port service was a service of technical nature, normal meaning of technical services was applicable on the facts and the assessee was liable to deduct tax u/s 194J of the Act. 3. Before the Ld. First Appellate Authority, it was the assessee s contention that bandwidth was provided with the state-of-art mechanism without human intervention inasmuch as a static optical fibre was used to provide bandwidth through a pai .....

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source u/s 194J of the Act. 4. The assessee has now challenged this finding of the Ld. CIT (A) in the CO. The ground of CO reads as under:- 1. That on the facts and circumstances of the case and in law, Commissioner of Income tax (Appeals)-XXX, New Delhi [briefly the CIT(A) ] has erred in holding that the payment made towards networking charges for provision of bandwidth or interconnect facility was fee for technical service and that the assessee was liable to deduct tax under section 194J. 4.1 .....

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plement and maintain equipment and connectivity. Liaison with government agencies and service providers for WPC, SAFCA and any other type of clearances to provide integrated and fault free services. Internet service provider. 4.3 The Ld. AR submitted that Bandwidth is a term used in the field of electronic communication . It is the width of the range (or band) of frequencies that an electronic signal uses on a transmission medium. Bandwidth is the amount of data that can be carried from one poin .....

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that is used at a particular internet location. It is the size of each network connection that determines how much bandwidth is available. The Ld. AR submitted that it is in this background, the role of Authorised International Gateway Providers (AIGP) needs to be noted. AIGP s lay down optical fibre / copper wires to provide the bandwidth to the customers. A customer receives bandwidth through these lines optical fibre / copper wires. Modem or converters pairs / optimux are installed to convert .....

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ily regulated and can be used only for permissible purposes. It is this service i.e. provision of bandwidth that the assessee has availed from AIGP to provide connectivity to its customers and the assessee is not permitted to resell the service. 4.4 The Ld. AR also submitted that for the purposes of sections 194J, meaning of the term "fee for technical services" needs to be seen. Clause (b) of the Explanation to section 194J of the Act inter-alia, states that "fees for technical s .....

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project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries". 4.5 The Ld. AR further submitted that in the definition, the word "technical" comes in between the words "managerial and consultancy services". Therefore, the meaning of the term fee for technical services is required to be understood by applying the rule of noscitur a sociis. It was submitted that technical service contemplates rendering of a .....

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not attract the applicability of section 9(1)(vii) of the Act. 4.6 The Ld. AR submitted that Hon ble Delhi High Court has considered the similar issue in CIT v. Estel Communications P. Ltd (2009) 318 ITR 185. The question was whether payment made for taking internet bandwidth was in the nature of fee for technical services and hence tax was liable to be deducted at source. The Hon'ble Court considered the provisions of section 9(1)(vii) of the Act. The Ld. AR also demonstrated that the Hon&# .....

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stel Communications P. Ltd (supra), Skycell Communications Ltd. 4.7 It was submitted by the Ld. AR that there has to be a service through human intervention. In the absence of such service, mere use of standard facility cannot be said to have resulted in rendering of technical services. This proposition of law that there should be service either that of managerial, technical or consultancy through the medium of human intervention has not been doubted by any Court of law. Even the Hon ble Supreme .....

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ndwidth no services were rendered, therefore, section 194J was not attracted. The question of applying section 194J on the premise of rendering professional services also does not arise as the professional services have been defined to mean services rendered by a person in the course of carrying on legal, medical, engineering architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other professional as notified by the board .....

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ovisions of section 194J. 6. We have heard the rival submissions and have perused the records. It is seen that under the provisions of section 194J of the Act, where the assessee makes any payment against fees for technical services, the assessee is liable to deduct tax at source at the specified rates at the time of credit of the payment or at the time of actual payment, whichever is earlier. Fee for technical services is defined under the Act as consideration paid for rendering any managerial, .....

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and consultancy services, the element of human involvement is necessary. In the facts of present case before us the assessee/user utilizes the technical equipment for bandwidth purposes only through technical equipment or gadgets used in the transmission process, but the same does not part-take the nature of services of managerial, technical or consultancy nature. Merely because, certain technical equipment or gadgets are made available for bandwidth does not establish the case of the Revenue th .....

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d that for the purpose of section 194J to become applicable, it is necessary that the payee receives 'services'. If the payee uses only technical gadgets, which are made available to others also for fees, the same does not make the payment subject to tax deduction at source under section 194J of the Act. The Bangalore Bench of the Tribunal in Infosys Technologies Ltd. {supra) on consideration of the payment made towards bandwidth charges to the service providers had held that such paymen .....

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te from the AO (TDS), is lacking merit in substance and this reasoning of the CIT(A) is to be out rightly rejected. Software developed by companies in India is exported either in physical mode (i.e. through floppy disks) or through wireless communication using satellite links. When an Indian company exports software to companies outside India using satellite communication facilities, the digital signals are converted into analog signals through earth stations and are transmitted to one of the ge .....

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rmal parlance refers to the amount of traffic that could be carried on the internet. Greater the bandwidth greater would be the ability to transmit data and other communication. The payments made to service providers such as AT & T or MCI Telecommunications are for the use of bandwidth provided for down linking signals in the US. The payments made are not in the nature of managerial, consultancy or technical services nor is it for the use of or right to use industrial, commercial or scientif .....

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ucted at source under section 194I of the Act held as under:- "We first take up corporate tax issues which is ground No. 5 for the assessment year 2007-08. The assessee is a licensed internet provider. During the year it procured, domestic half circuit facility to its customers from telecom service providers like BSNL, MTNL, and international half circuit facility from Rag, Atlantic at France. These are standard facilities provided for transmission of data by those organizations. The issue .....

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ard facility, when the lessee is not having any domain or control or possessory rights over such facility, cannot be categorised as use of assets for the purpose of the Act." 6.2 The Hon'ble Supreme Court in Bharti Cellular Ltd. (supra) observed that question of human intervention was never raised by the Department either before the CIT (A) or before the Tribunal and was not raised even in the present appeals. 6.3 The Hon'ble Delhi High Court also had an occasion to examine a simila .....

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rtain bandwidth to its subscribers. The main server on the basis of which the internet services were provided was located in the USA. For the services rendered by the assessee to the subscribers in India, it levied a charge and out of this, some amount was paid to the US party i.e. Teleglobe. As per the Assessing Officer, the assessee was liable to deduct tax at source from payments made to Teleglobe. The Assessing Officer invoked the provisions of section 9(1)(i) and 9(1)(vii). The ITAT conside .....

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as a simple case of purchase of internet bandwidth by the assessee from the Teleglobe. The Tribunal concluded that under the circumstances, there were no technical services provided by Teleglobe to the assessee and, therefore, the provisions of section 9(1)(vi) of the Act did not apply. On appeal to the Hon'ble Delhi High Court, the Hon'ble High Court held that the Tribunal had rightly dismissed the appeal as it was a simple case of payment for provision of a bandwidth and no technical s .....

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