2017 (11) TMI 568 - AT - Income Tax

TDS on Roaming Charges/Interconnect Charges as Technical Fee u/s 194J - revision u/s 263 - Held that - After perusing the aforesaid order of the Ld. CIT, we are of the considered opinion that the order of the CIT is wrong in assuming the jurisdiction under section 263 because the revisionary proceedings under section 263 have merely been initiated on the basis of the letter received from ACIT (TDS), Chandigarh and the Ld. CIT (TDS) did not arrive at any independent satisfaction for initiation of such proceedings; by acceding to the request of the learned ACIT, the CIT(TDS) has effectively enhanced the time limitation prescribed under section 201(3) for completion of 201 proceedings by a TDS officer; the order passed by the learned ACIT is neither erroneous nor prejudicial to the interest of the revenue since the learned ACIT took one of the two permissible views after conducting a detailed enquiry in respect of applicability of withholding tax provisions on the roaming charges paid by the appellant to the other telecom operators. CIT(TDS) has erred in concluding that roaming charges paid to other telecom operators by the assessee attracts provisions of section 194J without appreciating the facts that - Roaming charges paid by the assessee to the other telecom operators represent payments made for standard facility provided by such telecom operators and hence, cannot be classified as FTS for the purposes of the Act; No human intervention, which is sine qua non for a service to qualify as technical service, is involved in provision roaming services and therefore, roaming charges cannot be construed as Fee for Technical Services for the purposes of the Act CIT has not appreciated the facts that the other telecom operators, to whom the roaming charges have been paid, would have offered income arising from roaming charges received from the assessee to tax and hence, no prejudice would have been caused to the revenue and hence, initiation of 263 proceedings is bad in law and void ab initio. - Decided in favour of assessee.

Issues Involved:
1. Validity of the initiation of revisionary proceedings under Section 263 of the Income Tax Act, 1961.
2. Applicability of Section 194J of the Income Tax Act on roaming charges paid to other telecom operators.
3. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.
4. Recovery of tax demand under Section 201(1) of the Income Tax Act.
5. Charging of interest under Section 201(1A) of the Income Tax Act.

Detailed Analysis:

1. Validity of the initiation of revisionary proceedings under Section 263 of the Income Tax Act, 1961:
The assessee argued that the revisionary proceedings under Section 263 were initiated merely based on a letter from the Assistant Commissioner of Income Tax (TDS), Chandigarh, without the Commissioner of Income Tax (TDS) arriving at an independent satisfaction. The Tribunal noted that the Commissioner did not independently verify the facts but relied on the letter from the Assistant Commissioner, thus failing to establish an independent basis for the revisionary proceedings. Consequently, the initiation of proceedings under Section 263 was deemed invalid.

2. Applicability of Section 194J of the Income Tax Act on roaming charges paid to other telecom operators:
The Tribunal examined whether roaming charges paid by the assessee to other telecom operators should be classified as "Fees for Technical Services" (FTS) under Section 194J. The assessee contended that roaming charges were payments for a standard facility that did not involve human intervention, and thus, did not qualify as FTS. The Tribunal agreed with the assessee, referencing technical expert reports and judicial precedents, including decisions from the Chennai and Delhi Tribunals, which supported the view that roaming services are automated and do not require human intervention. Therefore, Section 194J was not applicable to roaming charges.

3. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue:
The Tribunal found that the AO had conducted detailed inquiries and made a reasoned decision that roaming charges did not attract TDS under Section 194J. The AO's order was based on permissible views supported by judicial precedents. Thus, the AO's order was neither erroneous nor prejudicial to the interest of the revenue, invalidating the grounds for revision under Section 263.

4. Recovery of tax demand under Section 201(1) of the Income Tax Act:
The Tribunal held that no tax demand under Section 201(1) could be raised if the taxes deductible but not deducted by the payer were directly paid by the recipient. This principle was supported by the Supreme Court's decision in the case of Hindustan Coca Cola Beverage Pvt. Ltd. and other judicial precedents. The Tribunal noted that the other telecom operators would have offered the income from roaming charges to tax, preventing any prejudice to the revenue.

5. Charging of interest under Section 201(1A) of the Income Tax Act:
The Tribunal observed that interest under Section 201(1A) could only be charged if there was a failure to deduct tax at source. Since the Tribunal found that roaming charges did not attract TDS under Section 194J, the question of charging interest did not arise. Moreover, any interest should be computed from the due date of payment of withholding tax by the assessee to the date of payment of taxes by the recipients or the filing of the original return of income, whichever was earlier.

Conclusion:
The Tribunal quashed the order passed by the Commissioner of Income Tax (TDS) under Section 263, holding it to be without jurisdiction and not sustainable in law. Consequently, the appeals of the assessee were allowed, and the consequential appeals arising from the order passed under Section 263 were dismissed as infructuous. The Tribunal emphasized that the AO's order was not erroneous or prejudicial to the revenue, and the roaming charges did not attract TDS under Section 194J.

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