2015 (9) TMI 1358 - AT - Income Tax

Roaming charges paid to other telecom operators - whether liable for deduction of tax at source? - Held that - From the statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT vs Bharti Cellular Ltd (2010 (8) TMI 332 - Supreme Court of India ) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be const rued as technical services. It is common knowledge that when one of the Subscribers in the assessee s circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, carrying out any work is the substance for making the payment relating to such work, liable for deduction of tax at source u/s 194Cof the Act. For carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under sect ion 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term work is defined in section 194C of the Act. The word work in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word work . We have al ready held that the payment of roaming charges does not require any human intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of work as defined in section 194C and hence the provisions of sect ion 194C are not applicable to the impugned issue. A subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the Subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange, etc. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. In view of the above, we hold that the payment of roaming charges by the asesssee to other service provider cannot be considered as rent within the meaning of section 194I of the Act. Accordingly, we hold that the payment of roaming charges does not fall under the ambit of TDS provisions either u/s 194C / 194I or 194J and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this account. - Decided in favour of assessee. Disallowance of Interest on loans borrowed - Held that - In the facts and circumstances of this case, we hold that the borrowed funds advanced to subsidiary by the assessee was on the ground of commercial expediency and accordingly the interest paid would be allowed as deduction in the hands of the assessee. We direct the Learned Assessing Officer to delete the addition made towards disallowance of interest - Decided in favour of assessee. Applicability of TDS provisions for international roaming - Held that - The payment of roaming charges does not fall under the ambit of Fee for Technical Services as no human intervention is required for the same and hence the income of non-resident telecom operator is not chargeable to tax in India u/s 195 of the Act and hence we refrain to give our opinion on the other beneficial provisions provided in the DTAAs for the assessee in the facts of the impugned issue. Accordingly, the ground raised by the assessee with regard to applicability of TDS provisions for international roaming charges is allowed.- Decided in favour of assessee. Disallowance of Penalty paid to Department of Telecommunications - whether the sum paid as penalty to Department of Telecommunications (DOT) by the assessee would fall under the Explanation to section 37(1) of the Act treating the same as amount paid for infraction of any law? - Held that - We find that the penalty paid to DOT is only for non-compliance of terms and conditions of the license agreement and not paid for infraction of any other law so as to warrant the Explanation to section 37(1) of the Act. Penalty paid to DOT does not come under the ambit of Explanation to Section 37(1) of the Act and accordingly, the grounds raised by the assessee in this regard are allowed.- Decided in favour of assessee. Disallowance of provision for Asset Restoration Obligation (ARO) written back - Held that - It is pertinent to note that section 41(1) of the act uses the term deduction in earlier years at the time of creation of such liability. Whereas in the instant case, the assessee had only claimed allowance of depreciation on the said provision for ARO and admittedly, claim of depreciation is only an allowance and not a deduction . We find that the Learned CIT(Appeals) had stated in his order that the assessee had not filed any documentary evidences before the Learned Assessing Officer to enable him to verify the authenticity of claim made by the assessee. In the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned Assessing Officer to decide the veracity of the claim in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard and assesse is also directed to provide complete details of depreciation claimed on ARO in earlier years and necessary workings in this regard. - Decided in favour of assessee for statistical purposes. Disallowance of amortization of payments made to IBM - Held that - We are admitting the additional evidence filed by the Learned AR containing the Master Service Agreement entered into by the assessee as it is very crucial for determining the issue under appeal. Since this agreement was not verified by the Learned Assessing Officer, we deem it fit and appropriate, in the facts and circumstances of the case, in the interest of justice and fair play, to set aside this issue to the file of the Learned Assessing Officer to decide this issue afresh in accordance with law. The Learned Assessing Officer is al so directed to mention in his order regarding the status of amortizat ion payment s made in the earlier years and the tax treatment given in the assessments of earlier years for the same. Needless to mention that the assessee be given reasonable opportunity of being heard - Decided in favour of assessee for statistical purposes. Addition made towards repayment of principal on finance lease - Held that - We are not able to ascertain the real facts of this issue. It is also seen that no discussion has been made by the Learned Assessing Officer in the assessment order with regard to this issue. Hence in the interest of justice and fair play, we deem it fit and appropriate to set aside this issue to the file of the Learned Assessing Officer to decide the issue afresh in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard - Decided in favour of assessee for statistical purposes. Disallowance of Unrealized foreign exchange fluctuation gain and Realized foreign exchange gain - CIT(A) allowed part relief - Held that - There is no dispute that the provisions of section 43A of the Act would become applicable for recognizing the exchange fluctuation if the loan was obtained for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section 43A of the Act, the said gain needs to be reduced from the taxable income. We also find that the Learned Assessing Officer having accepted to the facts of the case and the relevant provision of the Income Tax Act in his remand report, ought not to have come on appeal before us on this issue. We also find that this issue is covered by the decision of the Supreme Court in the case of CIT vs Woodward Governor of India P Ltd reported in (2009 (4) TMI 4 - SUPREME COURT) wherein the principles were laid down for recognition of exchange gain/loss under various circumstances. - Decided against revenue. Deduction of bad debts written off - CIT(A) allowed claim - Held that - AO having accepted this issue in the remand proceedings which is mentioned in page 74 para 27 of the Learned CIT(Appeals) order and had not given any adverse comments about the impugned issue, ought not to have come on appeal before us on this issue. Hence we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 4 raised by the revenue is dismissed.- Decided against revenue.

Summary

Issues Involved:

1. Barred by limitation.
2. Deduction of tax at source on roaming charges.
3. Disallowance of interest on loans borrowed.
4. Non-grant of MAT credit, charging of interest u/s 234B, and levy of penalty u/s 271(1)(c).
5. Deduction of tax at source on international roaming charges.
6. Disallowance of penalty paid to the Department of Telecommunications.
7. Disallowance of provision for Asset Restoration Obligation (ARO) written back.
8. Disallowance of amortization of payments made to IBM.
9. Addition made towards repayment of principal on finance lease.
10. Unrealized foreign exchange fluctuation gain.
11. Realized foreign exchange gain.
12. Deduction of bad debts written off.
13. Deduction of assets written off.

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The assessee's ground that the assessment order is barred by limitation was dismissed as not pressed.

2. Deduction of Tax at Source on Roaming Charges:
The primary issue was whether the roaming charges paid by the assessee to other telecom operators were liable for deduction of tax at source under sections 194C, 194I, or 194J of the Act. The Tribunal concluded that roaming services do not require human intervention and hence do not fall under the ambit of TDS provisions u/s 194J. Similarly, sections 194C and 194I were also deemed inapplicable as they involve human intervention and usage of equipment, respectively.

3. Disallowance of Interest on Loans Borrowed:
The Tribunal examined whether the interest-free loans advanced by the assessee to its subsidiary were driven by commercial expediency. It was concluded that the loans were advanced for business purposes, and the interest paid on borrowed funds was allowable as a deduction. The Tribunal also noted that section 14A was incorrectly invoked by the CIT(A).

4. Non-grant of MAT Credit, Charging of Interest u/s 234B, and Levy of Penalty u/s 271(1)(c):
These grounds were deemed consequential and were not adjudicated. The Tribunal noted that the issues were debatable and involved substantial questions of law, thus no penalty could be levied.

5. Deduction of Tax at Source on International Roaming Charges:
The Tribunal held that international roaming charges do not fall under the ambit of Fee for Technical Services and hence are not liable for TDS u/s 195 of the Act. The payments were made to foreign telecom operators for services provided outside India, and thus the income was not chargeable to tax in India.

6. Disallowance of Penalty Paid to the Department of Telecommunications:
The Tribunal concluded that the penalty paid to DOT was for non-compliance with the terms of the license agreement and not for infraction of any law. Therefore, it did not fall under the ambit of Explanation to section 37(1) and was allowable as a business expenditure.

7. Disallowance of Provision for Asset Restoration Obligation (ARO) Written Back:
The Tribunal directed the AO to verify the claim regarding the provision for ARO being capitalized and depreciation claimed on it. The issue was set aside to the AO for fresh consideration.

8. Disallowance of Amortization of Payments Made to IBM:
The Tribunal admitted additional evidence and set aside the issue to the AO for fresh examination, including verification of the Master Service Agreement with IBM.

9. Addition Made Towards Repayment of Principal on Finance Lease:
The Tribunal set aside the issue to the AO for fresh consideration due to lack of discussion and clarity in the assessment order.

10. Unrealized Foreign Exchange Fluctuation Gain:
The Tribunal upheld the CIT(A)'s decision to exclude the unrealized foreign exchange fluctuation gain from taxable income, as it was notional and pertained to capital account.

11. Realized Foreign Exchange Gain:
The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the issue in remand proceedings and had not given adverse comments.

12. Deduction of Bad Debts Written Off:
The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the issue in remand proceedings and had not given adverse comments.

13. Deduction of Assets Written Off:
The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the issue in remand proceedings and had not given adverse comments.

Summary:
The Tribunal allowed the assessee's appeal for AY 2009-10 and partly allowed the appeal for AY 2010-11. The revenue's appeal for AY 2010-11 was dismissed. The Tribunal provided detailed reasoning for each issue, often setting aside matters to the AO for fresh consideration and emphasizing the importance of evidence and adherence to legal provisions.