2015 (1) TMI 236 - AT - Income Tax

TDS u/s 194J - DATA link charges - networks interconnection - Technical or professional services - Held that - In order to provide managerial, technical and consultancy services, the element of human involvement is necessary where, there is provision for DATA link and inter-connection facilities, the user utilizes the technical equipments for inter-connection purposes only through technical equipment or gadgets used in the transmission process, but the same does not part take the nature of services of managerial, technical or consultancy nature - merely because, certain technical equipments or gadgets are made available for transmission of DATA link does not establish the case of the Revenue that such services are technical services provided by the service provider to the assessee, which are covered under the provisions of section 194J of the Act. The DATA link charges were paid for utilizing the standard facilities which were provided by the individual service providers by way of use of technical gadgets which were made available vide DATA link satellite link line established from one service provider to be carried over to the other service provider, does not involve technical services as there was only interconnection of the networks to the equipments of other service providers In the absence of any human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act the order of the CIT(A) is reversed and DATA link charges is held to be not liable for tax deduction at source under the provisions of section 194J - since there was no requirement to deduct tax at source u/s 194J, there was no liability upon the assessee and there was no failure on part of assessee for non-deduction of tax at source and the assessee was not liable to pay interest u/s 201(1A) Decided in favour of assessee.

Summary

Issues Involved:
1. Liability of datalink charges to TDS under section 194J.
2. Requirement of human intervention for datalink services.
3. Applicability of interest under section 201(1A) if recipients have included datalink charges in their taxable income.

Detailed Analysis:

1. Liability of datalink charges to TDS under section 194J:
The primary issue was whether datalink charges paid by the assessee were liable to TDS under section 194J of the Income Tax Act. The ACIT-TDS argued that the datalink charges should be subject to TDS as they constituted fees for technical services. The assessee contended that these charges were for using standard facilities provided by service providers through technical gadgets, without human intervention, and thus should not be considered technical services. The CIT(A) upheld the ACIT's view, stating that customer support indicated human intervention, making the charges subject to TDS under section 194J. However, the Tribunal reversed this finding, concluding that the use of technical equipment for data transmission without significant human intervention did not constitute technical services under section 194J.

2. Requirement of human intervention for datalink services:
The Tribunal examined whether human intervention was necessary for the datalink services to be classified as technical services. The CIT(A) had noted that human intervention was required for maintenance and customer support, implying that the services were technical. The Tribunal, however, found that the primary function of datalink services involved automated technical equipment with minimal human involvement, primarily for maintenance. Citing precedents like Skycell Communications Ltd. Vs. DCIT and Infosys Technologies Ltd. Vs. DCIT, the Tribunal held that the mere use of technical gadgets did not amount to technical services requiring TDS under section 194J.

3. Applicability of interest under section 201(1A) if recipients have included datalink charges in their taxable income:
The assessee argued that even if TDS was applicable, no demand under section 201(1) should be raised if the recipients had included the datalink charges in their taxable income, and at most, the assessee should be liable for interest under section 201(1A). The CIT(A) accepted this argument, directing the DCIT to modify the demand based on proof of tax payment by the recipients and to calculate interest on an actual basis. The Tribunal upheld this view, stating that since there was no requirement for TDS under section 194J, the assessee was not liable for interest under section 201(1A).

Conclusion:
The Tribunal concluded that datalink charges were not liable for TDS under section 194J as they did not constitute technical services involving significant human intervention. Consequently, the assessee was not liable to pay interest under section 201(1A). The appeals were allowed, reversing the CIT(A)'s findings and providing relief to the assessee.