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2016 (8) TMI 422 - KARNATAKA HIGH COURT

2016 (8) TMI 422 - KARNATAKA HIGH COURT - TMI - Non-deduction of tax at source on roaming charges paid to other service providers - whether the Tribunal is right in law in holding that the assessee could not have been deemed as one in default for non-deduction of tax at source on roaming charges paid by it to other service providers? - Held that:- Revenue contention is not only misconceived, but is on non existent premise, because the subject matter of the present appeals is not roaming services .....

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ming service by one mobile service provider Company from another mobile service provider Company, can be termed as “technical services” or not, is essentially a question of fact. The Tribunal, after considering all the material produced before it, has found that roaming process between participating entities is fully automatic and does not require any human intervention. Coupled with the aspect that the Tribunal has relied upon the decision of the Delhi High Court for taking support of its view. .....

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. - Decided in favour of assessee. - I.T.A.NO. 699/2015 C/W I.T.A.NOs.700/2015, 701/2015, 702/2015, 703/2015, 704/2015, 705/2015, 706/2015 - Dated:- 28-7-2016 - MR. JAYANT PATEL AND MR. S.N. SATYANARAYANA JJ. APPELLANTS (BY SRI K.V. ARAVIND, ADVOCATE) ORDER JAYANT PATEL J., In all these appeals, common questions arise for consideration. Hence, they are being considered simultaneously. 2. All the appeals are preferred by appellants - Revenue by raising the following substantial questions of law: .....

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e case, the Tribunal is right in law in holding that the data link charges does not require any human intervention and that the charges received or paid on account of this is not technical fees and does not fall under purview of Section 194J of the Act even when the Assessing Authority rightly treated the payment made by Vodafone South Limited to various operators as technical services falling within the ambit of the provisions of Section 194J of the Act? 3. Whether the Tribunal was correct in h .....

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y. As per the assessee, whenever any roaming facilities is provided to the customer and subscriber, it is taking connectivity of that with another mobile service provider Company. As per the assessee, the payment made to the another mobile service provider Company is by way of revenue sharing contract and no technical services are involved nor any payment is made for technical services. However, as per the appellants - Revenue, the payment made by the assessee to the another mobile service provi .....

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ter in appeal before CIT (Appeals) and the Commissioner, CIT (Appeals) confirmed the view of the Assessing Officer and the appeals to that extent were dismissed. But other part of the allowing of the appeals was of the verification in the reduction of the liability under Section 201(1) read with Section 201(1A) of the Act and the directions were given by the Appellate Authority. But it was found in the appeal that the TDS was deductible. The matter was carried further in appeal before the Tribun .....

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aras 7 to 12 of the order: 7. Ground No.2 of the appeal is against confirming the addition U/s 194J of the Act on not deducting TDS on roaming charges paid by the assessee being a fee for technical services. The ld ITO (TDS) observed that the assessee had paid roaming charges to other mobile operators. The assessee is providing GSM mobile services to its subscribers. The mobile subscribers of the company have been given the facilities of getting connected/avail of telecommunication facility, whe .....

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word technical as per Cambridge dictionary is knowledge, machines or methods used in science and industry. The work technical is derived from the word technique which means a particular or a special way of doing something. He further described how roaming services is technical services, which is reproduced as under: If the subscriber of Rajasthan Circle goes to Maharashtra when he reaches Maharashtra, the network of Maharashtra catches signals from his mobile and identifies IMSI (International .....

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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 whe .....

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ify that the subscriber is in Maharashtra and then call shall be diverted to the present location of the subscriber i.e. to Maharashtra. The ld ITO (TDS) has further observed that the entire process of roaming is thus highly technical and can be executed only if there is a contract between two service providers. The entire system is being operated /managed by highly skilled professionals. A small technical fault can disturb the entire system. Therefore, highly technical persons are constantly mo .....

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al. This makes it clear that roaming service is a technical service and the technical services are provided by one operator to another and not to the subscriber. Thus roaming service is a highly technical service and therefore while making payments the assessee was required to deduct TDS which it had not done. The ITO (TDS) gave reasonable opportunity of being heard to the assessee vide letter dated 29.01.2009, which has been replied by the assessee vide letter dated 11.02.2009 and 12.02.2009, w .....

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, VLR, Radio Network, Tower, BTS, BSS and highly advanced technology. (4) It is a technical arrangement between the two telecom service providers to connect their equipments, network and services to enable their customers to have access of telecom network wherever they move. (5) All the necessary arrangements are being made by the Home service 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 .....

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. 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 subs .....

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he Service Tax Act has also recognized roaming services as taxable services the Finance Bill, 2007. (12) The entire system is to be monitored /managed by the highly skilled technical. A small technical problem can disturb the connectivity of entire region. To avoid such eventuality the entire process is being monitored by skilled persons. (13) This clearly shows that the service provider of another region to whom roaming charges are paid is not providing services directly to ultimate customer bu .....

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rovider takes technical services of other telecom service provider to facilitate the subscriber to access telephone wherever he visits and therefore it is required to deduct TDS from the payments made to obtain these services. The ld. ITO(TDS) considered the following decisions on which the assessee claimed that roaming charges is not covered U/s 194J of the Act. (i) Skycell Communication Ltd. 251 ITR 53 (Madras) (ii) Bharti Cellular Limited ITA No.1120/2007) (iii) DCIT Vs. Parasrampuria Synthet .....

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ndering 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 .....

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staff which involves application of human mind. In view of the above finding, he held that roaming charges paid to the other telecom operator is a fee for technical services and liable to be deducted TDS U/s 194J of the Act. The ITO (TDS) rejected the assesee s request to apply the Hon ble Supreme Court decision in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT (supra) as payees has not filed its return of income. Therefore, the benefit of Hon ble Supreme Court decision cannot be gi .....

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ment made on behalf of the subscriber of the appellant company is not tenable, as the appellant company had entered into a separate agreement with the roaming service provider and is, therefore, liable for payment of roaming charges on its own behalf, as per the terms and conditions of the agreement. Hence, whether, later on, it charges for roaming services from its customers or not, this fact is not relevant and does not exempt the appellant company from the liability of TDS. Further, I find th .....

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again relied on the decision in the case of Skycell Communications Ltd., and the decision of Hon ble Delhi High Court in assessee s own case. However, in this connection, I agree with the detailed observations of the ld.A.O given in para 3.6 of his order (on pages 33 and 34) that the facts of the above two cases are different, as compared to the facts of the present case and hence, the decisions given in those cases are not applicable in the present case. Therefore, I find no merit in the submis .....

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se 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 rec .....

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maintains temporary subscriber record for the said mobile device and provides an internal temporary phone number from backend system to the mobile device which is not visible to human. * Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. * The Hexacom s subscriber in Mumbai, who is temporarily registered as Airtel s subscriber makes calls in Mumbai and the minutes are registered in his identity fo .....

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. Billing process *Usage of roaming subscriber in visited network is captured in a file called TP, i.e. transferred account procedure for GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. *Tap file contains details of calls made by subscriber, viz., location, calling party, time of call and duration, etc, *TAP /CIBER files are rated as per tariffs charged by visiting network operator. *such TAP/CIBER file is transferred to home network of subscriber *i.e. to Hexacom). *Home ne .....

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scriber of Hexacom 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 .....

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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 technical because it uses various instruments such as MSC (Mobile Switching Centre), VLR (Visitor Location Register), Radio network, towers, BTC etc, but the system is operated/managed by the Highly skilled professionals. The assessee s argument was that the roaming service is managed automatically by machine .....

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ces provided on a standard facilities to be a technical service. The whole roaming process is automatically and there is no human interference in it. The human interference is required to maintain the robust network only to ensure break down free service to the subscriber. The network owner has to maintain for itself, its network in robust condition. The technical support of the staff is required to maintain the equipment and gazettes but it is not a service for roaming facility provided to the .....

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n held by the Hon ble Delhi High Court that roaming services not involving human interference and is not technical services as contemplated under Explanation 2 to Section 9(1)(vii) of the Act and not liable for tax deduction at source U/s 194J of the Act. This view has been earlier held by the Hon ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT (2001) 251 ITR 53 (Mad) order dated 23.02.2001 wherein the Hon ble High Court has held that provisions of Cellular mobile telep .....

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vices 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 cust .....

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y human intervention is required for providing the data link services and are liable to be deducted TDS U/s 194J of the Act and held that payments made for utilizing such services was not in the nature of technical services governed by Section 194J of the Act. He further relied on the decision of ITAT Ahmadabad Bench in the case of Canara Bank Vs. ITO 305 ITR (AT) 189 wherein MICR charges paid to SBI held not to be covered U/s 194J read with Section 9(1)(vii) Explanation-2. He also relied on the .....

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rists Pvt. Limited ITA No.1336/Kol/2011 and ITA Delhi bench decision in the case of Delhi Transco Ltd. (ITA No.755(Del) /2011 A.Y. 2005-06. He also relied on the decision in the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon ble Supreme Court. The Hon ble Supreme Court has held as under:- In cases requiring examination by technical experts, the Department .....

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at in these cases, in which a cellular provider under an agreement pays interconnect/access/port charges to BSNL/MTNL, the question whether the cellular provider has rendered technical services 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) 3 .....

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opinion taken from Director CMAI, ExDirector (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 taken opinion from Former Chief Justice of India Mr. Kapadia on IUC post technical examination, cross examined and reexaminat .....

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ion, repairing, servicing, maintenance are separate activities, they are back office functions and are require human intervention. But the roaming process between participating entities is fully automatic and does not require any human intervention. Accordingly, the interconnected uses charge will not attract the provisions of Section 194J read with Section 9(1) (vii) read with Explanation-2 thereto. Therefore, he prayed to delete the addition. 10. At the outset, the ld Sr.DR vehemently supporte .....

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stice of India Mr.S.H.Kapadia dated 03.09.2013 and also various judgments given by the ITAT Ahmadabad Bench in the case of Canara Bank on MICR and Pune Bench decision on Data Link Services. We find that for installation/setting up/repairing/servicing/maintenance capacity augmentation are require human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also .....

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arges 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. 14. Reading of the above order clearly show that fact- situation was essentially similar to the one here in the case of the assessee. Assessee was also treat .....

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tax at source on roaming charges paid by it to other service providers. Ground 3 is allowed. 15. In its ground no.4, assessee is aggrieved on the levy of interest u/s.201 (1A) of the Act. This is a consequential ground. We have already held that assessee is not at default for deduction of tax on roaming charges and interest levied on the assessee on such amount u/s.201(1A) of the Act, stands deleted. However, in so far as interest u/s.201(1A) of the Act in relation to discounts/commission on pr .....

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e and the payment made for roaming connectivity cannot be termed as technical services and, ultimately, it was found that the assessee could not be said as in default for non deduction of TDS at source on the roaming charges paid by it to the other service provider and the appeals are allowed to that extent. Under the circumstances, the present appeals before this Court. 8. We have heard Mr.K.V.Aravind, learned counsel appearing for the appellants - Revenue in all the appeals. The learned Counse .....

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axmann.com 356 (SC) and it was submitted that if the observations made by the Apex Court in the above referred decisions are considered, the decision of the Tribunal would be unsustainable and consequently, the questions may arise for consideration before this Court in the present appeals. 9. We may record that in the decision of the Apex Court in the case of Bharti Cellular Limited (supra) the Apex Court after having found that whether human intervention is required in utilizing roaming service .....

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s is fully automatic and does not require any human intervention. Therefore, we do not find that the aforesaid decision in the case of Bharti Cellular Limited, would be of any help to the appellants - Revenue. 10. In the another decision of the Apex Court, in the case of Kotak Securities Limited, the matter was pertaining to the charges of the Stock Exchange and the Apex Court, ultimately, found that no TDS on such payment was deductible under Section 194J of the Act. But the learned Counsel for .....

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