2007 (5) TMI 355 - AT - Income Tax

Deduction of tax at source u/s 194J - telecom operators - Payments of port charges ( Interconnect charges ) - Nature of Technical services Or Payment made against work ? - Payments to M/s. BSNL under (i)Lease Line rental charges; (ii)Port charges; (iii)Access charges - HELD THAT - From the procedure of tranmission and the services rendered by M/s. BSNL to the assessee, it is quite evident that apart from lease line rent charges the other services provided by M/s. BSNL to the assessee are based on technology and the assessee without the technical services by M/s. BSNL in not able to continue its business to transmit call/voice and signals to the recipients. Therefore, in our considered opinion, payment with regard to port charges and Inter connectivity charges to M/s. BSNL are in the nature of technical services and are not payment made against work as observed by the ld. CIT(A) and thereby asking the Assessing Officer to levy TDS u/s 194C. Apart from the above fact the instruction from the CBDT vide letter to M/s. BSNL also makes it clear that the assessee is liable to deduct TDS on such payments. We therefore set aside the order of the ld. CIT(A) holding that port charges are not subject to provision u/s 194J and are rather in the nature of work u/s 194C and therefore restore the order of the Assessing Officer. Based on the same analogy we hold that Access charges also comes under the purview of section 194J and therefore restore the order of Assessing Officer by setting aside the order of the ld. CIT(A) in this regard. Payment on account of lease rental charges , such payment is neither in the nature of work nor in the nature of agreement and therefore cannot be considered u/s 194J and therefore we uphold the order of the ld. CIT(A) and accordingly dispose of the grounds raised by the revenue in both the appeals by partly allowing the grounds raised by it and dismissing the ground No. 2 of the assessee. TDS u/s 194C on inter connect charges - HELD THAT - We find that the provision of TDS has been made and to recover the tax in due time and as scheduled occasion and the above contention of the assessee that this amount will to double taxation, cannot be accepted. However it is also a fact that payment has been made by recipient and such TDS will tantamount to tax which has already been paid by BSNL. We therefore are of the view that the matter should be restored back to the file of the Assessing Officer to decide the issue afresh and compute the TDS and interest thereon after deducting the tax already offered by M/s. BSNL on such receipts. We hold and direct accordingly accept the Ground raised by the assessee for statistical purposes. Levy of interest u/s 201(1A) - bona fide belief - HELD THAT - We after hearing both the parties are of the opinion that interest under section 201(1A) has to be levied in view of the provision contained therein. However, while disposing the ground No. 3 we have directed the Assessing Officer to deduct the amount of tax paid by the recipient on such income and therefore the same should be considered and thereafter interest u/s 201(1A) is to be determined, we hold and direct accordingly and accept the ground for statistical purpose. In the result both the appeals filed by the revenue and by the assessee and the cross objection filed by the assessee are partly allowed as indicated above.

Issues Involved:
1. Adjudication of issues not raised by the Assessing Officer (AO).
2. Applicability of section 194C on the Interconnect charges.
3. Taxes already paid by Telecom Operators.
4. Levy of interest under section 201(1A).

Detailed Analysis:

Issue 1: Adjudication of Issues Not Raised by the AO
The assessee contended that the CIT(A) erred in suo motu adjudicating the applicability of section 194C to Roaming Charges, pass-through charges, Inter-operator charges, and Port charges ("Interconnect charges") even though the AO had not held so in the order passed under section 201(1)/201(1A) read with section 194J of the Act. The appellant prayed that the order holding applicability of section 194C be held invalid. However, this ground was dismissed as not pressed.

Issue 2: Applicability of Section 194C on the Interconnect Charges
The CIT(A) held that section 194C would be applicable to the interconnect charges, treating the payments as a contract for "work." The assessee disputed this, arguing that the payments to other telecom operators do not constitute a contract for "work" and thus do not attract TDS under section 194C. The CIT(A) modified the AO's order, stating that payments for port charges to BSNL are in the nature of payments for carrying out work under section 194C, while other charges do not attract TDS provisions. The Tribunal found that payments for port charges and interconnectivity charges are technical services and should be subject to TDS under section 194J, not 194C. The Tribunal restored the AO's order regarding these charges but upheld the CIT(A)'s order for lease rental charges, which do not fall under section 194J.

Issue 3: Taxes Already Paid by Telecom Operators
The assessee argued that the other telecom operators had already disclosed their income and paid taxes on the Interconnect charges, and thus, deducting TDS under section 194C would result in double taxation. The Tribunal noted that the principle of avoiding double taxation is well-established and directed the AO to compute the TDS and interest after deducting the tax already paid by the recipients (BSNL). The Tribunal accepted this ground for statistical purposes and remanded the matter to the AO for fresh computation.

Issue 4: Levy of Interest Under Section 201(1A)
The assessee contended that no interest should be levied as they were under a bona fide belief that no tax was deductible at source. The Tribunal held that interest under section 201(1A) must be levied as per the provisions. However, it directed the AO to consider the tax already paid by the recipient (BSNL) before determining the interest, thereby accepting this ground for statistical purposes.

Conclusion
Both the appeals filed by the revenue and the assessee, along with the cross objections filed by the assessee, were partly allowed. The Tribunal provided a detailed analysis and directions for each issue, ensuring compliance with the relevant provisions of the Income-tax Act while avoiding double taxation.

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