2010 (12) TMI 842 - AT - Income Tax

Assessee in default - Tds u/s 194J or 194I - national roaming costs - application of rule of ejusdem generis - held that - Here, the words of similar nature clearly make room for the application of the rule of ejusdem generis in the sense that the other business or commercial rights must be of the same nature as those listed in the earlier part of the provision (viz., patents, copyrights, trade-marks etc.). Such restrictive words are not present in Explanation (i) below section 194-I. - the rule of ejusdem generis does not apply to the interpretation of Explanation (i) of section 194-I. Regarding TDS u/s 194I - The payment of roaming charges by the assessee to the other service providers cannot be considered as rent within the meaning of the Explanation below section 194-I. Therefore, there was no liability on the part of the assessee to deduct tax from the same under that section. Regarding TDS u/s 194J - the CIT(A) has not in fact decided the issue of applicability of section 194J. - in view of the observations of the Supreme Court in the case of CIT vs. Bharti Cellular Ltd. (2010 -TMI - 202748 - Supreme Court of India ) matter remanded back to AO to decide afresh. Regarding double payment of tax - After the judgment of the Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. (http //www.taxmanagementindia.com/visitor/detail case laws.asp?ID 1676), there is no merit in the contention that taxes can be recovered from the deductor even though taxes were paid by the deductees. - CIT(A) ought to have directed the Assessing Officer to invoke his powers under the Act and have the payment of taxes by the payees verified from the respective Assessing Officers assessing the payees with the help of the Permanent Account Numbers of the payees made available by the assessee - If upon verification it is found that the taxes have been paid by the payees fully in respect of the roaming charges received by them from the assessee, nothing survives - Appeal is partly allowed

Summary

Issues Involved:
1. Applicability of Section 194-I to national roaming charges.
2. Applicability of Section 194J to national roaming charges.
3. Recovery of taxes from the assessee when taxes have already been paid by the payees.

Issue-wise Detailed Analysis:

1. Applicability of Section 194-I to National Roaming Charges:

The primary issue was whether the payments made by the assessee for national roaming charges to other mobile service providers should be considered as "rent" under Section 194-I of the Income Tax Act, 1961, thereby necessitating tax deduction at source (TDS). The CIT(A) held that Section 194-I was applicable, treating the payments as rent for the use of equipment. The Tribunal, however, disagreed, emphasizing that the definition of "rent" in Explanation (i) of Section 194-I focuses on the "use" of the asset. The Tribunal concluded that the assessee did not use the equipment of other service providers but merely facilitated the roaming service for its subscribers. The Tribunal held that the payments for national roaming charges could not be considered as rent, and thus, Section 194-I was not applicable.

2. Applicability of Section 194J to National Roaming Charges:

The second issue was whether the payments for national roaming charges should be considered as fees for technical services under Section 194J. The CIT(A) did not explicitly address this issue in his order, leading to ambiguity. The Tribunal noted that the CIT(A) might have indirectly accepted that Section 194J was not applicable. However, given the importance of the issue, the Tribunal decided to remand the matter back to the Assessing Officer for fresh consideration in light of the Supreme Court's observations in CIT vs. Bharti Cellular Ltd. The Tribunal directed the Assessing Officer to examine whether human intervention was involved in providing the roaming service and to decide the applicability of Section 194J accordingly.

3. Recovery of Taxes from the Assessee When Taxes Have Already Been Paid by the Payees:

The third issue was whether the taxes could be recovered from the assessee when the payees had already paid the taxes on the national roaming charges. The assessee provided confirmation letters from several service providers stating that they had included the national roaming charges in their taxable income and paid the taxes. The CIT(A) rejected the assessee's plea, stating that the declarations were not verified by the Assessing Officer and that the onus was on the assessee to prove that the taxes were paid by the payees. The Tribunal disagreed with the CIT(A)'s approach, noting that the assessee had provided sufficient details, including the Permanent Account Numbers of the payees, which should have been verified by the Assessing Officer. The Tribunal directed the Assessing Officer to verify the payments from the respective Assessing Officers of the payees and to ensure that taxes were not recovered twice for the same income.

Conclusion:

The Tribunal partly allowed the assessee's appeals. It held that Section 194-I was not applicable to national roaming charges, remanded the issue of Section 194J applicability to the Assessing Officer for fresh consideration, and directed the Assessing Officer to verify the payment of taxes by the payees to avoid double recovery.