2018 (4) TMI 931 - AT - Income Tax

TDS u/s 194J - disallowance of Data Circuit / Broadband / Multi-Protocol Label Switching ( MPLS ) charges under section 40(a)(ia) for non deduction of tds - Held that - As decided in assessee s own case for A.Y.2010-11 2016 (2) TMI 1164 - ITAT MUMBAI as held merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J - 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 - Decided in favour of assessee Disallowance of net enhancement and customization expenses (after allowing depreciation at the rate of 60%) - Held that - As per our considered view, as technology keeps evolving, no enduring benefit arises and thus payments made for application software are revenue in nature. No merit for the disallowance of net enhancement and customization expenses.- Decided in favour of assessee Disallowance of net repairs and maintenance expenses after allowing depreciation at the rate of 10% - Held that - After going through the nature of expenditure incurred on repairs and maintenance, we found that same is revenue in nature. No merit for the disallowance so made by the AO on account of repairs and maintenance. Disallowance made on account of lease rent expenses - Held that - The issue is squarely covered by the order of the Tribunal in assessee s own case for the A.Y.2010-11 as held at by following AS-19 the assessee has complied with the provisions of the Act, that AS-19 provides that in case of operating leases, the lease rent payment has to be treated as an allowable expenditure

Issues Involved:
1. Disallowance of Data Circuit/Broadband/Multi-Protocol Label Switching (MPLS) charges under section 40(a)(ia) of the IT Act.
2. Disallowance of net enhancement and customization expenses.
3. Disallowance of net repairs and maintenance expenses.
4. Deleting disallowance made on account of lease rent expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Data Circuit/Broadband/Multi-Protocol Label Switching (MPLS) charges under section 40(a)(ia) of the IT Act:
The primary issue concerns the disallowance of Data Circuit/Broadband/Multi-Protocol Label Switching (MPLS) charges due to purported non-deduction of taxes under section 194J of the IT Act. The assessee argued that the charges were not in the nature of fees for technical services but were payments for using standard facilities provided by telecom service providers without human intervention. The Tribunal referred to the assessee’s case for the A.Y.2010-11, where it was held that such charges do not involve technical services as there was no human intervention. Following this precedent, the Tribunal decided in favor of the assessee, finding no merit in the disallowance.

2. Disallowance of net enhancement and customization expenses:
The assessee contested the disallowance of net enhancement and customization expenses, arguing that such expenses are revenue in nature due to the evolving nature of technology. The Tribunal agreed, citing several judicial pronouncements that support the view that payments made for application software are revenue in nature. Consequently, the Tribunal found no merit in the disallowance of these expenses.

3. Disallowance of net repairs and maintenance expenses:
The assessee also challenged the disallowance of net repairs and maintenance expenses. The Tribunal reviewed the nature of the expenditures and concluded that they are revenue in nature. The Tribunal referenced multiple judicial pronouncements that delineate the principles for determining whether an expenditure is capital or revenue. The Tribunal found that the expenditures in question were for repairs and maintenance and should be treated as revenue expenses. Therefore, the Tribunal did not uphold the disallowance made by the AO.

4. Deleting disallowance made on account of lease rent expenses:
The Revenue's grievance pertained to the deletion of disallowance made on account of lease rent expenses amounting to ?1,13,02,061/-. The Tribunal noted that the issue was covered by its order in the assessee’s own case for A.Y.2010-11, where it was determined that the lease rent payments, as per AS-19, should be treated as allowable expenditures. The Tribunal found that the assessee had complied with the provisions of AS-19, which mandates that lease rent payments in operating leases be considered as an item of the Profit & Loss account on a straight-line basis over the lease period. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

Conclusion:
The Tribunal concluded by allowing the appeal of the assessee and dismissing the appeal of the Revenue. The order was pronounced in the open court on 16/04/2018.

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