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2019 (12) TMI 206 - AT - Income TaxTDS liability on UC/bandwidth Charges paid to foreign carriers - Rectification of order u/s 154 by the AO - The department has held that these payments are taxable in the hands of the recipients both as Royalty as well as FTS and therefore, the assessee was liable to deduct TDS and since, the assessee has not done so, demand is raised u/s 201 (1) and 201 (1A). Held that - as per the tribunal order of Delhi bench rendered in the case of Bharti Airtel Ltd. 2016 (3) TMI 680 - ITAT DELHI , on both aspects i.e. Royalty and FTS, the issue was decided in favour of the assessee but on one aspect i.e. Royalty aspect, the tribunal order in assessee s own case is against the assessee and this tribunal order is challenged by the assessee before Hon ble Karnataka High Court and the appeal is pending there. It is apparent that the earlier tribunal order in assessee s own case for A. Ys. 2008 09 to 2012 13 was not brought to the notice of DRP because even in A. Y. 2012 13 for which tribunal order in assessee s own case in the proceedings u/s 201 (1) is against the assessee on one aspect i.e. Royalty aspect, DRP has decided the issue in favour of the assessee and held that no TDS was required to be deducted. When on one aspect, the matter is decided against the assessee i.e. Royalty aspect in the present case, it cannot be held that no TDS is required to be deducted even if on some other aspect i.e. on FTS aspect in the present case, it is held that TDS is not required to be deducted on that aspect. Moreover, the department has not accepted this proposition because the AO in the draft assessment order decided the issue against the assessee and because of that, objection was raised by the assessee before DRP and revenue cannot file appeal before the tribunal against DRP directions in these years. The consideration paid by the assessee as IUC/Bandwidth charges for alleged inter connect service falls within the ambit of process Royalty and element of income was involved and therefore, the assessee was bound to deduct the TDS on such payment. On the second aspect as to whether the consideration paid by the assessee as IUC/Bandwidth charges for alleged inter connect service falls within the ambit of FTS and element of income was involved or not, we find force in the submissions of the learned AR of the assessee that this issue is squarely covered in favour of the assessee by the tribunal order of Delhi Bench rendered in the case of Bharti Airtel Ltd. Vs. ITO (Supra) because on this aspect, no adverse order could be pointed out by the learned DR of the revenue. Decided partly in favor of assessee.
Issues Involved:
1. Liability to deduct TDS from Interconnect Usage Charges (IUC)/bandwidth charges paid to foreign carriers. 2. Characterization of IUC/bandwidth payments as royalty or fee for technical services (FTS). 3. Applicability of Section 206AA for higher TDS on payments made to non-residents without PAN. 4. Validity of orders passed in the name of a non-existent entity. Detailed Analysis: 1. Liability to Deduct TDS from IUC/Bandwidth Charges: The core issue across the appeals was whether the assessee was liable to deduct TDS on payments made to foreign carriers for IUC and bandwidth charges. The department argued that these payments were taxable in the hands of the recipients both as royalty and as FTS, thereby necessitating TDS deduction under Sections 201(1) and 201(1A). The tribunal had previously held that the consideration paid by the assessee as IUC charges fell within the ambit of process royalty, and thus, TDS was required. 2. Characterization of IUC/Bandwidth Payments: The assessee contended that IUC and bandwidth payments should not be characterized as royalty or FTS. The learned CIT(A) had upheld the Tax Officer’s order treating these payments as royalty under the amended provisions of Section 9(1)(vi) of the Act. The tribunal, however, noted that on the royalty aspect, the previous tribunal order in the assessee's own case was against the assessee and preferred to follow this order over the Delhi Bench's order in Bharti Airtel Ltd. For the FTS aspect, the tribunal found merit in the assessee's argument, citing the Delhi Bench's decision in Bharti Airtel Ltd., which was in favor of the assessee, and decided this aspect in favor of the assessee. 3. Applicability of Section 206AA: The revenue appealed against the CIT(A)’s decision which held that Section 206AA (which mandates higher TDS rates for non-residents without PAN) does not override the provisions of the Double Taxation Avoidance Agreements (DTAAs). The CIT(A) had relied on tribunal orders in Infosys BPO Ltd. and Nagarjuna Fertilisers and Chemical Ltd. The tribunal found no contrary decisions and upheld the CIT(A)'s order, thereby dismissing the revenue's appeals on this issue. 4. Validity of Orders Passed in the Name of a Non-Existent Entity: The assessee argued that the orders passed in the name of Vodafone South Limited, which did not exist at the time the orders were passed, were void-ab-initio. The tribunal, referencing the Supreme Court judgment in CIT Vs Spice Infotainment, agreed that orders passed in the name of a non-existent entity are bad in law. However, this argument was considered without prejudice to the main issues. Conclusion: - The tribunal allowed the assessee's appeals for A.Ys. 2008-09 to 2012-13, deciding that the payments did not fall within the ambit of FTS. - For A.Ys. 2013-14 to 2015-16, the appeals were partly allowed, upholding the characterization of payments as royalty but not as FTS. - All six appeals of the revenue were dismissed, affirming the CIT(A)'s decisions regarding the non-applicability of Section 206AA and the invalidity of orders passed in the name of a non-existent entity. - The stay petitions filed by the assessee were dismissed as the main appeals were disposed of. Order Pronounced: The order was pronounced in the open court, dismissing the stay petitions, allowing the assessee's appeals for A.Ys. 2008-09 to 2012-13, partly allowing the appeals for A.Ys. 2013-14 to 2015-16, and dismissing all six appeals of the revenue.
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