2016 (3) TMI 727 - AT - Income Tax

TDS u/s 194H - whether roaming charges paid by the appellant qualify as Fee for Technical Services and thus, subject to tax deduction at source? - Held that - The relationship between assessee and its distributors qua the sale of impugned products is on principal to principal basis; the consideration received by assessee is sale price simpliciter. There is no relationship of Principal and agent between assessee and distributors as held by authorities below their orders are reversed. Looking at the transaction being of Sale/Purchase and relationship being of principal to principal the discount does not amount to commission in terms of sec. 194H, the same is not applicable to these transactions. Therefore, assessee cannot be held in default; impugned demand raised applying sec. 194H is quashed - Decided in favour of assessee

Issues Involved:

1. Limitation period for order under section 201(1)/201(1A)
2. Classification of roaming charges as Fee for Technical Services under section 194J
3. Verification of tax payment by recipient telecom operators
4. Levy of interest under section 201(1A) on tax demand under section 201(1)

Issue 1: Limitation Period for Order under Section 201(1)/201(1A)

The Tribunal had previously decided against the assessee, holding that the proceedings initiated and completed under section 201(1)/201(1A) were within the period of limitation. This decision was based on the Tribunal's interpretation that the order was not barred by limitation and hence, was not bad in law.

Issue 2: Classification of Roaming Charges as Fee for Technical Services under Section 194J

The assessee argued that roaming charges should not be classified as Fee for Technical Services, citing a previous decision by the Tribunal in the case of M/s. Bharti Hexacom Ltd. and other cases such as M/s. Vodafone Cellular Ltd. The Tribunal noted that the facts of the present appeal were identical to those in the Bharti Hexacom case, where it was held that roaming services do not qualify as technical services under section 194J. The Tribunal emphasized that the entire process of providing roaming services is automatic and does not involve human intervention, which is a critical factor in determining whether a service is technical. This view was supported by various judicial precedents, including decisions by the Delhi High Court and the Madras High Court, which had held that services not involving human intervention are not technical services as contemplated under Explanation 2 to Section 9(1)(vii) of the Act.

Issue 3: Verification of Tax Payment by Recipient Telecom Operators

The assessee contended that the TDS Officer should verify the payment of tax by the recipient telecom operators, even if the appellant could not furnish confirmations. The Tribunal agreed with the assessee, noting that the requisite details for such verification were available with the CIT (A)/TDS Officer. The Tribunal directed that the verification should be conducted to ensure compliance.

Issue 4: Levy of Interest under Section 201(1A) on Tax Demand under Section 201(1)

The Tribunal found that the CIT (A) had erred in directing the TDS Officer to levy interest under section 201(1A) on the tax demand raised under section 201(1). The Tribunal reversed the CIT (A)'s order on this ground, aligning with its decision on the classification of roaming charges.

Conclusion

The Tribunal allowed the appeals of the assessee on grounds 2, 3, and 4, reversing the CIT (A)'s order. It was noted that if the Supreme Court decides the issue of roaming charges against the assessee in the Vodafone case, the AO or any other authorized officer may move an appropriate application. The appeals were allowed, and the order was pronounced in open court on 5/02/2016.

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