2016 (11) TMI 1723 - AT - Income Tax

TDS u/s 194J OR 194C - assessee in default in terms of section 201 and interest u/s 201(1A) - non-deduction of tax at source for payments made towards interconnect charges (including port charges, access charges, roaming charges and pass through charges) - HELD THAT - As relying on own case 2015 (9) TMI 1358 - ITAT KOLKATA for carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under section 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term 'work' is defined in section 194C of the Act. The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have already held that the payment of roaming charges does not require any human intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of section 194C are not applicable to the impugned issue. We find that there is no dispute on the non-applicability of provisions of section 194I 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 2016 (3) TMI 680 - ITAT DELHI wherein they have held that the subject mentioned payments do not fall under the ambit of fee for technical services or under royalty u/s 194J of the Act. We hold that there is no obligation to deduct tax at source for the assessee payer in terms of section 194C or 194J of the Act and hence the assessee cannot be treated as assessee in default u/s 201 of the Act. Hence consequentially the interest u/s 201(1A) of the Act cannot be charged on the assessee in the instant case - Assessee appeal allowed.

Summary

Issues Involved:
1. Whether the assessee could be treated as 'assessee in default' under section 201 of the Income-tax Act, 1961.
2. Applicability of section 194J regarding non-deduction of tax at source for payments made towards interconnect charges.
3. Applicability of section 194C regarding non-deduction of tax at source for payments made towards interconnect charges.
4. Whether the interest under section 201(1A) could be charged on the assessee.

Detailed Analysis:

1. Whether the assessee could be treated as 'assessee in default' under section 201 of the Income-tax Act, 1961:
The core issue was whether the assessee, engaged in providing Cellular Mobile Telephony Services (CMTS), could be treated as 'assessee in default' for non-deduction of tax at source on payments made towards interconnect charges, including port charges, access charges, roaming charges, and pass-through charges. The Assessing Officer (AO) categorized these payments as 'fee for technical services' under section 194J, thus requiring TDS. The assessee contended that these services were not technical services within the meaning of section 194J and cited various judicial precedents to support this claim.

2. Applicability of section 194J regarding non-deduction of tax at source for payments made towards interconnect charges:
The AO argued that payments to various telecom operators fell under 'fee for technical services' and were liable for TDS under section 194J. The assessee countered by citing the Hon’ble Madras High Court's decision in Skycell Communication Ltd vs DCIT and the Bangalore Tribunal's decision in Wipro Ltd vs ITO, which held that the use of standard facilities did not constitute technical services under section 194J. The CIT(A) supported the assessee's view, stating that the telecom services did not involve technical services requiring human intervention and thus did not fall under section 194J.

3. Applicability of section 194C regarding non-deduction of tax at source for payments made towards interconnect charges:
The CIT(A) concluded that the provisions of section 194C were applicable to roaming charges, pass-through charges, and inter-operator charges, as these involved work performed by telecom operators. However, the CIT(A) held that PSTN Interconnect fees, specifically the 'Annual Rent and Guarantee Rental and/or leased line charges,' did not fall under section 194C or 194J, as these charges were for the use of optical fiber cables, which are not land or buildings.

4. Whether the interest under section 201(1A) could be charged on the assessee:
The assessee argued that since the taxes had already been paid by the recipient telecom operators on the subject receipts, it should not be treated as 'assessee in default' under section 201, and consequently, interest under section 201(1A) should not be charged. The tribunal referenced its own earlier decisions and the Hon’ble Supreme Court's decision in CIT vs Bharti Cellular Ltd, which emphasized the need for human intervention to classify services under section 194J. The tribunal concluded that the payments did not involve human intervention and thus did not attract TDS under section 194J or 194C. Consequently, the assessee could not be treated as 'assessee in default,' and interest under section 201(1A) could not be charged.

Conclusion:
The tribunal held that the provisions of section 194J and section 194C were not applicable to the payments made by the assessee towards interconnect charges, as these did not involve human intervention. Therefore, the assessee could not be treated as 'assessee in default' under section 201, and no interest under section 201(1A) could be charged. The appeals and cross objections of the assessee were allowed, and the appeals of the revenue were dismissed.