2022 (7) TMI 990 - AT - Income Tax

TDS u/s 194J or 194C - Non-deduction of TDS on Auto Roaming Charges paid to other Telecom operators - Demand and interest raised u/s 201(1) 201(1A) - HELD THAT - We hold that there is no obligation to deduct tax at source for the assessee payer in terms of section 194C or 194J of the Act and hence the assessee cannot be treated as 'assessee in default' u/s 201(1) of the Act. Hence consequentially the interest u/s 201(1A) cannot be charged on the assessee in the instant case. Accordingly, we set aside the common order passed by the CIT(A) in all the appeals under consideration and allow the grounds raised by the assessee in all the appeals under consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Demand and interest raised under Section 201(1) & 201(1A) of the Income-tax Act, 1961.
2. Classification of roaming charges as royalty under Section 194J.
3. Applicability of Section 194H for commission payments on prepaid connections.
4. Relief under Section 201(1) regarding income inclusion by recipients.
5. Levy of interest under Section 201(1A).

Detailed Analysis:

1. Demand and Interest Raised Under Section 201(1) & 201(1A):
The assessee, a company providing cellular mobile telephone services, was subject to a survey under Section 133A of the Income-tax Act, 1961 on 13.10.2009. The Assessing Officer (AO) identified non-deduction of TDS on auto roaming charges paid to other telecom operators. Consequently, orders under Section 201(1) & 201(1A) were passed, holding the assessee liable for TDS under Section 194J for the Assessment Years (AYs) 2004-05 to 2010-11. Additionally, for AY 2010-11, the assessee was held liable for TDS under Section 194H for commission payments made to distributors on prepaid connections. The CIT(A) confirmed the AO's orders, leading the assessee to appeal before the ITAT.

2. Classification of Roaming Charges as Royalty Under Section 194J:
The assessee argued that roaming charges paid to other telecom operators do not constitute royalty under Section 194J. The assessee referenced various judgments, including the Andhra Pradesh High Court in CIT vs. J.D.Italia, which emphasized that the nomenclature used in agreements is not conclusive for determining the nature of payments. The assessee further argued that roaming charges do not involve the use of equipment in a manner that would classify them as royalty under Explanation 2(iva) to Section 9(1)(vi). The ITAT noted that the issue is covered by various decisions, including the coordinate bench in the assessee's own case for AYs 2011-12 and 2012-13, which held that roaming charges do not meet the definition of royalty as they do not involve human intervention or the use of equipment by the service recipient.

3. Applicability of Section 194H for Commission Payments on Prepaid Connections:
For AY 2010-11, the AO held the assessee liable for TDS under Section 194H for commission payments made to distributors on prepaid connections. The assessee did not specifically address this issue in the provided text, focusing primarily on the classification of roaming charges. However, the ITAT's decision to allow the appeals on the broader issue of TDS on roaming charges implies a favorable outcome for the assessee on this point as well.

4. Relief Under Section 201(1) Regarding Income Inclusion by Recipients:
The assessee contended that the recipients of the roaming charges had included the same in their accounts and appropriately offered it for tax by filing their returns of income. The ITAT referenced decisions from the Allahabad High Court in Jagran Prakashan Ltd. vs. DCIT and the Kolkata Tribunal in Ramakrishna Vedanta Math vs. ITO, which support the position that the revenue should first ascertain whether the recipients had directly paid taxes before treating the payer as an 'assessee in default' under Section 201. The ITAT's decision to allow the appeals suggests that this argument was accepted.

5. Levy of Interest Under Section 201(1A):
The assessee argued that since it had no liability to deduct tax at source, the issue of deposit of taxes and consequential interest under Section 201(1A) does not arise. The ITAT agreed, holding that there is no obligation to deduct tax at source for the assessee payer in terms of Section 194C or 194J, and hence the assessee cannot be treated as 'assessee in default' under Section 201. Consequently, the interest under Section 201(1A) cannot be charged.

Conclusion:
The ITAT allowed the appeals of the assessee, setting aside the common order passed by the CIT(A) and holding that there is no obligation for the assessee to deduct tax at source for the roaming charges paid to other telecom operators. The ITAT's decision relied heavily on previous judgments and the absence of human intervention in the provision of roaming services. The decision also addressed the broader implications of tax withholding obligations and the inclusion of income by recipients, providing comprehensive relief to the assessee.