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2021 (7) TMI 1197 - AT - Income TaxShort deduction of TDS - Addition u/s 194J or 194C - assessee has made payments for purchase of bulk bandwidth data from M/s. Bharti Airtel Ltd. and M/s. Reliance Communications Ltd. - default u/s.201(1) and 201(1A) - HELD THAT - Payments made by the assessee for bulk purchase of bandwidth from service providers like M/s. Bharti Airtel Ltd. and M/s. Reliance Communications Ltd. cannot be considered as fees for technical services because such services have been provided through optical fiber cable without any human intervention - as per terms of agreement and nature of services between parties it is clearly in the nature of works contract which comes u/s.194C f the Act. AO as well as the ld.CIT(A) has erred in holding the assessee as an assessee in default u/s.201(1) / 201(1A) of the Act to compute short deduction of TDS and interest thereon. Accordingly we set aside the order of the ld.CIT(A) and direct the AO to delete additions made towards short deduction of TDS and interest u/s.201(1) / 201(1A) - Appeal filed by the assessee is allowed.
Issues:
1. Short deduction of TDS under section 201 of the Income Tax Act. 2. Classification of services under section 194C or 194J of the Act. 3. Condonation of delay in filing the appeal before the Tribunal. Issue 1: Short deduction of TDS under section 201: The appellant challenged the order of the Commissioner of Income Tax (Appeals) sustaining the action of the Assessing Officer regarding the short deduction of TDS by the appellant company. The Assessing Officer alleged a default under section 201(1) and 201(1A) read with section 194J of the Act, stating that the applicable TDS rate was 10% under section 194J, whereas the appellant had deducted TDS at 2% under section 194C. The appellant contended that the services provided without human intervention did not fall under section 194J but rather under section 194C. The Tribunal analyzed the nature of services provided by the appellant, noting that the services were fully automated without human intervention. Relying on precedents, including the decision of ITAT, Delhi Bench, the Tribunal held that the services did not qualify as fees for technical services under section 194J, and thus, the appellant was not in default under section 201(1) and 201(1A). Consequently, the order of the CIT(A) was set aside, and the AO was directed to delete the additions made towards short deduction of TDS and interest. Issue 2: Classification of services under section 194C or 194J: The appellant argued that the services provided by the appellant company, involving the sale of high-speed internet bandwidth without human intervention, should be classified under section 194C rather than section 194J of the Act. The appellant emphasized that the services were fully automated and did not fall under the definition of fees for technical services as per section 9(1) of the Act. The Tribunal examined the agreements between the parties and concluded that the services rendered without human intervention were akin to works contract falling under section 194C, not under section 194J. Citing decisions of various High Courts, including the Delhi High Court and Madras High Court, the Tribunal held that the payments made for the purchase of bandwidth did not constitute fees for technical services. Therefore, the AO and CIT(A) were found to have erred in holding the appellant in default under section 201(1) and 201(1A) of the Act. Issue 3: Condonation of delay in filing the appeal: The appellant sought condonation for a one-day delay in filing the appeal before the Tribunal, attributing the delay to circumstances beyond their control. After considering the reasons provided and finding them to be a reasonable cause for the delay, the Tribunal condoned the delay and admitted the appeal for adjudication. In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the AO to delete the additions made towards short deduction of TDS and interest under sections 201(1) and 201(1A) of the Income Tax Act. The judgment clarified the classification of services provided by the appellant under sections 194C and 194J, emphasizing the absence of human intervention in the services rendered. Additionally, the Tribunal granted condonation for the delay in filing the appeal before the Tribunal.
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