TMI Blog2022 (7) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... d against the CIT(A) 8, Hyderabad s common order dated 09/10/2019 involving proceedings u/s 201(1) and 201(1A) of the Income-tax Act, 1961 (in short the Act ) for the AYs 2004-05 to 2010-11. As the facts and grounds are materially identical in all these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. 2. The only grievance of the assessee in all these appeals is against the demand and interest raised u/s 201(1) 201(1A) of the Act. 3. Briefly the facts of the case are that the appellant is a company engaged in the business of providing cellular mobile telephone services. In this case, a survey u/s.133A of the I.T.Act, 1961 was conducted on 13.10.2009. The assessee was requested by the AO to file details of expenditure incurred and TDS deducted under the various TDS sections. Accordingly, the assessee company filed the details of expenditure incurred and TDS deducted, and on the basis of the information filed by the assessee, the AO noticed Non-deduction of TDS on Auto Roaming Charges paid to other Telecom operators. Accordingly, orders u/s.201(1) 201(IA) of the I.T. Act, 1961 were passed on by the AO, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternatively contend that it is 'royalty' under the A(Jt. It is settled law that legislature cannot place same item as both fees for technical services and royalty and that too under same section of IDS ills. 194J of the Act. 3.5.2. Without prejudice, it is submitted that the payment is towards roaming services. not for use of a earmarked equipment and therefore, falls outside the ambit of section 194J read with Explanation 2(iva) to section 9( I )(vi) of the Act. For ease of reference same is reproduced as under: Explanation 2.-For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; 3.5.3. The expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its own network. What is contemplated by the word 'use' is that the customer comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of leasing agreement between two telecom operators payment of roaming; charges being in the nature of service cannot fall within the ambit of equipment royalty. 3.5.7. In connection to the above, may the Appellant invites attention to the decision of the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Limited (126 STC 114) wherein in the context of the interpretation of the expression the right to use , the Supreme Court has held that the expression should mean transfer of effective domain/control of an asset. Even the National GSM Roaming Agreement between the Appellant and Aircel Cellular (Page -1 to -32 of FPB) does not provide for any transfer of control of the equipment involved in the roaming facility to the Appellant. In fact, the definition of a Roaming Subscriber (Refer Page No.8 of FPB) in the agreement states that it shall mean a person or entity with valid subscription for national use issued by one of the parties and using a GSM Subscriber Identity Module (SIM) and who seeks GSM service in a geographic area outside the area served by his HPLMN Operator. The agreement between the parties is merely to the effect that if the Appellant's subscrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r customers. amount paid to assessee by its customers would not represent income by way of royalty within meaning of section 9(1). 3.5.9. Reliance is also placed on decision of Delhi High Court in New Skies Sattellite BV (382 ITR 114); 3.5.10. The Hon'ble Mumbai Tribunal in the case of Standard Chartered Bank vs. Deputy Director of Income-tax (International Taxation) - 2(1), Mumbai (11 taxmann.com 105) had observed as under: The meaning of the expression use or right to use as used in Article 12(3)( b ) has to be first understood. In the case of ISRO Satellite Centre (ISAC) , In re ( supra), the AAR had to decide whether the consideration paid by ISRO to Inmarsat Global of the UK. for leasing of the Inmarsat navigation transponder capacity, would be Royalty under the DTAA between India and UK. The Authority after looking into the nature of the agreement. ruled that by earmarking a space segment capacity of the transponder for use by the applicant, the applicant did not get possession (actual or constructive) of the equipment of Inmarsat Global of the U K.; nor did the applicant use any equipment of Inmarsat Global of the U K. The payment made by the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded or to be provided to any person by the telegraph authority in relation to telecommunication service. Clause 109a of section 65 defines telecommunication service to mean service of any description provided by means of any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence or information of any nature, by wire, radio, optical, visual or other electromagnetic means or systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception by a person who has been granted a licence under the first proviso to sub-section (I) of section 4 of the Indian Telegraph Act, 1885 and includes in clause (iii) thereof cellular mobile telephone services including provision of access to and use of switched or non-switched networks for the transmission of voice, data and video, inbound and outbound roaming service to and from national and international destinations . The provisions of section 65 of the Finance Act, 1994, referred to above show that the Legislature itself has looked upon the provision of cellular telephony as a service and this includes inbound and outbound roaming service bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipment. It was in this context that the AAR opined that it cannot be called as a use of the equipment. Similar views have been taken in the case of Isro Satellite Centre (ISAC), In re (2008) (307 ITR 59) (AAR) and Cable and Wireless Networks India P. Ltd., In re (2009) (315 ITR 72) (AAR). 3.5.13. Attention is also invited to the judgment of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. and Another vs. Union of India and Others (2006) (282 ITR 273) (SC). This judgment arose under the Service Tax and Sales Tax wherein one of the questions which arose for consideration was whether there was any transfer of a right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber. Referring to section 4 of the Telegraph Act, 1885, which gives exclusive privilege in respect of telecommunication and the power to l?:rant licenses to the Central Government, it was contended by the service providers that they provided only a service by the utilization of telegraph licensed to them for the benefit of the subscribers. The Supreme Court proceeded on the assumption that incorporeal rights may be goods for the purpose of levying Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel (supra) in case of Bharat Sanchar Nigam Ltd. vs. ACIT (87 taxmann.com 152) (attached herewith as Annexure (G) has held as under: The Appellant humbly submits that the process of domestic roaming and international roaming is similar and hence above decisions would directly apply in present case. 3.5.17. The Delhi Tribunal in Geo Connect Vs. DCIT and vice versa (88 Taxman.com 758) held under: Where assessee paid International Private Leased Circuit (IPLC) charges to two American Companies in view of fact that American company only agreed for rendering services of transmission of call data and its effective management and there was no agreement for use or right to use any industrial, commercial or scientific equipment or patentable process between non-resident and assessee for use of dedicated private bandwidth in underwater sea cable. consideration paid to American company would not fall under term 'royalty' under section 9(J)(vi). 3.5.18. Thus based on clear observation of Supreme Court in BSNL (at para 3.5.13), direct decisions of Delhi Benches of ITAT, the domestic roaming charges cannot be payment for royalty as use of scientific, commercial or te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be performed, is expecting that person to do the impossible. When a law is nowhere even on the horizon, leave aside the statute, it is wholly impossible for any person to perform the obligations imposed by such a law. 3.5.22. In view of the above, the Appellant submits that it be held that Roaming Charges paid to OTOs are not Royalty u/s. 9(1)(vi) of the Act and hence, no tax is deductible u/s. 194J of the Act and .consequentially, the Appellant cannot be held as an 'assessee-in-default' u/s. 201 (1) of the Act. GROUND NO II: NO RELIEF U/S. 201(1) OF THE ACT IGNORING THE FACT THAT THE DOMESTIC TELECOM OPERATORS HAVE INCLUDED THE SAME IN ITS ACCOUNTS AND APPROPRIATELY OFFERED IT FOR TAX BY FILING THEIR RETURN OF INCOME. I. Facts in Brief: 1. I.1n this regard, the Appellant would like to submit that all the recipients of domestic roaming charges are deep corporate companies, the department can use its machinery to assess and . verify that whether they have included in the income in their hands. 2. Submissions: 2.1. In this regard, the revenue should have first ascertained whether the recipients had directly paid taxes u/s.191 of the Act b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Rs. 85,73,257/- and for FY 2015-16 TDS was deducted of Rs. 12,74,589/- on the roaming charges paid to other telecom operators of Rs. 1,49,21,934.86. He, therefore, submitted that the roaming charges paid by the assessee to the other telecom service providers needs to be treated as royalty payments within the meaning of clause (vi) of section 9(1) of the Act and accordingly, TDS needs to be deducted u/s 194J of the Act. He submitted that since the assessee has not deducted TDS, the lower authorities have rightly treated it as assessee in default . 8. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities and also gone through the written submissions filed by the assessee. Since the assessee not deducted TDS on auto roaming charges paid to other telecom operators, the AO raised demand u/s 201(1) and interest u/s 201(1A) of the Act. The issue in dispute is squarely covered by various decisions as quoted supra in the written submissions filed by the assessee as well as the decisions of coordinate benches of ITAT cited supra. 8.1 The coordinate bench in assessee s own case for AYs 2011-12 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's payee(s) and Govt. to this effect does not in any way mean that it itself has made any royalty payment to very payee(s) for utilizing/uplinking the spectrum in question. We thus rely on the Tribunal s co-ordinate bench order (supra) that such interlinking of telecom services fails to specify the royalty element test in the very terms. The Revenue s last argument invoking TDS mechanism going by the assessee suo moto deduction in Assessment Years 2015-16 and 2016-17 (supra) does not ipso facto attract the impugned statutory provisions. We lastly conclude that the specific definition prescribed by the legislature in the Act regarding payment of royalty would override the agreements and corresponding terminology employed between the Govt. of India, Telecom Department with the corresponding spectrum allottees going by stricter interpretation as per hon'ble apex court s decision in Commissioner of Customs Vs. Dilip Kumar Co. (2018) 9 SCC1 (SC). We accordingly proceed to decide the assessee's instant identical latter substantive ground in both these appeals against the department. Ordered accordingly. 8.2 The coordinate bench of ITAT, Kolkota in the case of Vodafone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machines and does not involve any human interface, the interconnect charges cannot be regarded as Fee for Technical Services (FTS) and hence would not fall in the ambit of section 1941 of the Act. We find that on further appeal by the revenue to the Honble Supreme Court in Bharti Cellular Ltd (supra), the Honble Apex Court had stated that right from 1979 various judgements of the High Courts and Tribunal have taken the view that the words technical services have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words technical services in section 9(1 )(vii) r. w. Explanation 2 comes in between the words managerial and consultancy services . We find that the principles laid down by the Delhi High Court have been accepted by the Apex Court as such and the Apex Court has merely directed the TDS officer to carry out factual verification to determine the extent of human involvement. Based on this direction, the CBDT had also issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12 As per the directions of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced below :- Question 4: Can you enlighten us about the functioning of the network system of the cellular operators at the time of receiving or providing inter-connect services to each other including installation, interconnectivity etc from the very beginning? Ans. 4: As regards to interconnect to Gateway switches/MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases - (i) Planning phase- where how much capacity required and how much traffic handlin, capacity is required on these basis hardware and software is determined. (ii) Selection of vendor - is done to determine who will provide these services along wit, his consultancy. (iii) Hardware and software is supplied by the vendor and it is customized to the need c the network as per the TEC specifications. (iv) Installation as per vendor guidelines - it involves installation of both hardware an, software. (v) Call configuration/provisioning of system - in this the operator has to configure an, make provision in data base as to how the calls will flow. This has to be done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no human intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only when the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another? No, as stated above, no human intervention is required in the process of carriage of calls. However, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc.) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the interconnect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS [2015] 55 taxmann.com 452/68 SOT 188 (Chennai-Tribunal) Dy. CIT Vs. Delhi Transco Ltd. [2014] 52 taxmann.com 261 (Delhi Trib.) The various decisions cited supra have held that there will be no TDS on transmission charges and the same analogy would apply with equal force in the case of transmission charges in telecom industry. 4.17 From the aforesaid statement recorded from technical experts pursuant to (';2 directions of the Supreme Court in Bharti Cellular Ltd. case (supra) which has beer heavily relied upon by the Learned CITA, we find that human intervention is required only for installation/setting up/ repairing /servicing maintenance capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194C are not applicable to the impugned issue. 9.1. We find that there is no dispute on the nonapplicability of provisions of section 194T of the Act in the instant case, We also draw support of our finding from the decision of Delhi Tribunal in the case of Bharti Airtel Limited Anr vs ITO Anr in ITA Nos. 3593 to 3596/Del/2012 and ITA Nos. 4076 to 4079/Del/2012 dated 17.3.2016 reported in (2016) 46 CCH 0304 DelTrib , wherein they have held that the subject mentioned payments do not fall under the ambit of 'fee for technical services' or under 'royalty' uls 194J of the Act. 9.2. We also draw support from the recent decision of the Hon'ble Karnataka High Court in the case of CIT, TDS Bangalore vs Vodafone South Ltd reported in (2016) 72 taxmann.com 347 (Karnataka) vide order dated 28.7.2016, wherein the head notes read as under:- Section 194J, read with section 201 of the Income Tax Act, 1961 - Deduction of tax at source - Fees for professional or technical services (Roaming charges) Asessment Years 2005-06 to 2012-13 - Assessee was a mobile service provider company - Whether payment made by assessee to another mobile service provider company fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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