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2016 (2) TMI 1164 - AT - Income TaxTDS u/s 194J - Disallowance of Data/Circuit Bandwidth Charges(D/CBC) u/s. 40(a)(ia) - Held that - Merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J of the Act. DATA link charges were paid for utilizing the standard facilities which were provided by the individual service providers by way of use of technical gadgets which were made available vide DATA link satellite link line established from one service provider to be carried over to the other service provider, does not involve technical services as there was only interconnection of the networks to the equipments of other service providers. No human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act - DATA link charges were not liable for tax deduction at source under the provisions of section 194J. Allowable busniss expenditure - lease rent payment - Held that - The assessee had claimed the expenditure as per the provisions of AS-19, that the agreement entered into by the assessee was in the nature of operating lease as defined in AS-19, as per the accounting standard in such cases the payments have to be considered as an item of P&L account on a straight line basis over the lease period. The FAA had given a categorical finding of fact that the provision of ₹ 1. 08 crores was in respect of the liability that had accrued during the FY 2009-10. By following AS-19 the assessee has complied with the provisions of the Act, that AS-19 provides that in case of operating leases, the lease rent payment has to be treated as an allowable expenditure. Therefore, in our opinion, the order of the FAA does not require any interference from our side.
Issues:
1. Disallowance of Data/Circuit Bandwidth Charges under section 40(a)(ia) of the Income Tax Act. 2. Treatment of lease expenses claimed under AS-19 provisions. Issue 1: Disallowance of Data/Circuit Bandwidth Charges: The Assessee, a share broking and trading company, filed an appeal challenging the disallowance of Data/Circuit Bandwidth Charges (D/CBC) amounting to Rs. 2.16 Crores under section 40(a)(ia) of the Act. The Assessing Officer found that the Assessee had not deducted tax at source while making payments to eight parties for D/CBC. The AO invoked sections 194J and 40(a)(ia) of the Act, stating that fees for technical services should have tax deducted at source. The First Appellate Authority (FAA) upheld the disallowance, considering human intervention in the services provided. The Assessee argued before the ITAT that the services were not technical, citing precedents. The ITAT analyzed similar cases and concluded that the payments for D/CBC were not for technical services, reversing the FAA's decision. Issue 2: Treatment of lease expenses claimed under AS-19 provisions: The AO disallowed Rs. 1.08 Crores claimed as lease expenses under AS-19 provisions, treating it as a prepaid expense. The FAA, after considering the AS-19 provisions and the accrual of expenses, deleted the addition made by the AO. Before the ITAT, the DR supported the AO's order, while the AR relied on the FAA's decision, emphasizing compliance with AS-19. The ITAT observed that the provision was in line with AS-19 and recognized the lease payment as an allowable expenditure under the Act. Consequently, the appeal filed by the AO was dismissed, and the appeal by the Assessee was partly allowed. In conclusion, the ITAT ruled in favor of the Assessee regarding the disallowance of Data/Circuit Bandwidth Charges, stating that the payments were not for technical services. Additionally, the ITAT upheld the treatment of lease expenses claimed under AS-19 provisions, considering them as allowable expenditures. The judgments provide clarity on the application of tax deduction provisions and accounting standards in the respective cases.
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