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TMI Blog2014 (4) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... n be termed as traditional concept of letting or renting, by using the expression “other arrangement” aimed at permitting “use” of either immovable property (land and buildings) or other properties (plant, equipment, machinery, etc). The Parliamentary intent was clear that transactions - the consideration for which otherwise may not be covered by rent - also ought to be within Section 194-I, by use of the expression “other … arrangement for the use” - Whilst there is no doubt that the intention of the parties was to ensure that the use of technical and specialized equipment maintained by Indus should be resorted to - at the same time, there is no escape from the fact that the infrastructure is given access to, and in that sense, it is given for the “use” of the mobile operators - The towers in a sense are the neutral platform without which mobile operators cannot operate - If one goes back in time each mobile operator - which is now Indus’ customer - used to carry out this activity, by necessarily renting premises and installing the same equipment. The rent paid then to the owner, whenever such transactions were leases, were business expenses - Yet leases or such like arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,334.16 crores under Section 194C of the Act. Opportunity of hearing was granted to Indus by the Assessing Officer ( AO ). The Assessing Officer issued a deduction certificate under Section 197 on 22.05.2013 @ 2.5% for projected receipts covered under Section 194-I for F.Y. 2013-14 based on the average rates of tax to turnover for the last three years shown at 1.44%, pendency of assessment proceedings for A.Y. 2011-12 and penalty proceedings under Section 271(1)(C) for A.Y. 2010-11. Aggrieved by that certificate, Indus filed a writ petition (W.P.(C) No. 4518/2013) before this Court, which by its order dated 19.07.2013 directed the petitioner to prefer a Revision Petition before the CIT who was to dispose it of expeditiously. It was in these circumstances that the petitioner approached the CIT who made the impugned order. 3. Indus submitted that it merely provided passive infrastructure services to its customers, i.e. telecom service providers and that there was no intent to rent the premises. To say this, it relied extensively on the Master Service Agreement, saying that it contained stringent conditions as to the kind of services it had to provide, the controlled and sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sale or any transfer of right to use and, therefore, the same could not be subjected to VAT under KVAT Act, 2003. The assessee has also placed reliance on the Hon ble Delhi High Court Judgment cited above. A careful reading of the decision of the Hon ble Delhi High Court shows that the question of law for examination was whether the receipts were subject to levy of service tax by Union of India or levy of Value Added Tax by the Delhi Government. The decisions of the Hon ble Karnataka High Court and the Hon ble Delhi High Court cannot be applied in the facts and circumstances of this case and are clearly distinguishable. The observations of both the Courts as mentioned above have to be read in the context in which the reference was made before them by the assessee and cannot be ipso facto applied to ascertain the nature of receivables u/s 194C or 1941 within the meanings prescribed to such receipts in the respective provisions of the I.T. Act. The nature of receivables, whether covered u/s 194C or 194-1,was not examined by the Courts. 5.4.2. It may also be relevant to discuss here the provisions of the Service Tax Act in the context of the reliance placed by the assessee on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old storage units have been provided to the mobile operators for their equipment. 5.4.4. These units merely provide service for preserving the essential food items including perishable goods at various temperature suitable for specific food items for required periods. The customer brings its packages for preservation for a required period and takes away its packages after paying cooling charges. The customers do not use the building, plant/machinery in any manner and does not become a tenant of any kind, Therefore, in the said Circular, the provision of 1941 was said to be not applicable to the cooling charges paid by the customers of the cold storage. 5.4.5. The plea of the assessee that the mobile operators do not have access or control over the site/towers/designated area of the site except for the purposes of maintenance/rectification of any defects in the equipment installed by such customers is not borne out from MSA as it is evident that the mobile operator has the right to install equipment such as BTS equipment, associated antennae and active infra network equipment on the tower/ site/designated site of the assessee. Further, the mobile operators are not merely enjoy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en deducted from it up to 31.07.2013. Therefore, it has requested to issue revised certificate u/s 197(1) at Nil rate. It is seen from the records that the assessee has been able to furnish evidence only to the extent of Rs. 164.01 crore of tax deducted up to 30.06.2013 in Form No. 26AS. However, it also includes receivables covered under other sections of the Act (like 194, 194A, 194C, 194J etc.) 7. Indus argues that it is registered with Department of Telecommunications for providing passive telecom infrastructure services to telecom service providers. For the purpose of providing telecom network infrastructure services, it enters into standard service agreements titled Master Services Agreement ( MSA ) with its customers for provision of services such as continuous power supply at the desired voltage and air conditioning required for optimal functioning of the customers equipment and security service for securing the equipment installed on the towers/sites. It argues that the customers do not have access, control or possession over the towers, sites or designated areas (of the site) which are limited to rectification or maintenance of any defects in the equipment installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erested in an appropriate temperature arid humidity levels. 10. Arguing that the activity and the transaction between Indus and its customers is not renting or dealing in property, learned senior counsel stated that the essence of the activity was the provision of highly skilled and technical services. These included the provision of creation and maintenance of highly controlled artificial temperatures, conducive to the functioning of the mobile service providers signal transmission. The agreements, it was submitted, insisted upon this even as a prerequisite for the payment of monthly consideration or fee. In this respect, reliance was placed on the express terms of such agreements, which provided that if Indus failed to ensure that the temperature specified was not maintained and there was failure more than five times a month, no payment towards consideration would be made. Further, counsel submitted that the express provisions in the agreement stipulated that the arrangement was neither a lease, nor created any rights in the property; access provided was merely incidental to the main purpose of providing service. 11. Learned counsel relied on the observations of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator to gain access to the site and the passive infrastructure. For instance, Clause 3.1.2 states that the access shall be limited to the purpose of carrying out operation and maintenance activities and that too only to the authorised representatives or properly authorise sub-contractors of the sharing operator. Clause 1.8 of the Schedule 2 of the MSA has to be read along with the above clause. The tables set out in this schedule providing for payment of service credits by Indus to the sharing operators for failure to achieve the uptime service levels and those prescribing payment of service credits by Indus to the sharing operators for nonsubmission of the reports and providing for stiff penalties for any failure on the part of Indus show that it is the responsibility of Indus to ensure that the passive infrastructure functions to its full efficiency and potential, which in turn means that it has to be in possession of the passive infrastructure and cannot part with the same in favour of the sharing telecom operators. With several such restrictions and curtailment of the access made available to the sharing telecom operators to the passive infrastructure and with severe penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular clarified that the main function of the Cold Storage is to preserve the perishable goods by means of a mechanical process, and storage of such goods is only incidental in nature. The customer is also not given any right to use any demarcated space/place or the machinery of the cold storage (emphasis supplied) and thus does not become tenant. Therefore, the provision of 194-I is not applicable to the cooling charges paid by the customers of the cold storage . 13. Learned counsel for the respondent, Mr. Kamal Sawhney, relied and emphasized on the expressions any kind of / agreement...or arrangement to say that the nature of the transaction need not fall within the traditionally acknowledged or understood concept of leasing or hiring of property. It was submitted that the MSA repeatedly stated that the mobile service operators were given site access. Counsel also stated that the agreement or arrangement between Indus and its clients envisioned permitting the latter to use of such portion of the premises as was contemplated by the parties. The portion allowed to be used, i.e. the passive infrastructure, to that extent was exclusively that of the mobile operators, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor; (ii) goods carriage shall have the meaning assigned to it in the Explanation to sub-section (7) of Section 44AE; (iii) contract shall include sub-contract; (iv) work shall include (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.] xxxx xxxxxxxxxx xxxxxxxx Rent 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent shall, at the time of credit of such income to the account of the payee or at the time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Sharing Operator in accordance with the terms and conditions of this Agreement. 2.1.2 Throughout the Term of this Agreement, the Sharing Operator shall be entitled to provide notice to Indus of those Sites in relation to which it wishes to be granted Site Access Availability (a Service Order ). The process for issuing a Service Order shall be as specified in Schedule 1 (Site Access Availability). XXXXXX XXXXXX XXXXX 2.1.4 In the event that the Service Orders received by Indus in respect of any Site(s) mean that the available Passive Infrastructure at such Site(s) are over-subscribed, an applicant whose Service Order was received by Indus prior to another Service Order shall be given priority by Indus while allocating such Passive Infrastructure to the relevant applicants. 2.1.5 With respect to each Site in relation to which Indus is able to grant Site Access Availability, the Parties shall execute a Service Contract in accordance with the procedure set out in Schedule 1 (Site Access Availability), and the provisions of each Service Contract shall include the standard terms set out in Schedule 5 (Standard Site Access Terms). Each Service Contract shall be duly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance is to be shared with the sharing operators on a monthly basis. Consequences follow if operation and maintenance service levels fall short of the required standards. 18. Clause 4 outlines Indus rights; clause 4.1 provides Indus the right to require that whenever any access to the site is needed by the sharing operator or its approved contractor, such access is supervised by it (Indus) or its nominees. Indus is also enabled with the right to use and grant access to any site including the infrastructure provided by it (including passive infrastructure) for provision of such services to any party or for such other purposes as Indus may in its discretion decided to support from time to time. Clause 4.2 enables Indus to ask for relocation of the equipment of the sharing telecom operator; which may be for the acquisition of a site or action by a Government authority or any order of Court etc. Clause 5.2 obliges Indus to ensure that any other operators on the side do not cause any damage or install any equipment which would harmfully interfere or physically obstruct the equipment of any sharing operator existing at the site. The agreement further stipulates that the infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes set out in Clause 3.1.2. Clause 1.9.3 sets out the rates at which the petitioner has to pay the operation and maintenance service credits to the sharing operator for its failure to ensure the required uptime service levels. The Credits payable by Indus to the Sharing Operator for failure to achieve the above Uptime Service Levels are as set out below: Operation and Maintenance Service Level % of Total Rate Payable by Indus 99.95% or greater 0.0% 99.90% or greater but less than 99.95% 5.0% 99.70% or greater but less than 99.90% 7.5% 99.50% or greater but less than 99.70% 10.0% 99.00% or greater but less than 99.50% 25.0% Less than 99.00% 30.0% The Service Credits payable, by Indus, in the above terms apply to the sites in the relevant Circle mentioned below the Operation and Maintained Service Level spelt out in 1.9.2. Clause 1.10 requires Indus to report the reasons for any unplanned downt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties. 22. In Krishna Oberoi (supra), the facts were that the assessee owned a hotel which provided to its customers various types of furnished rooms with certain other facilities for a consideration called room charges . Room charges were composite in nature and it included charges for various services catered by the hotel. It was argued that consideration received by the hotel management could not be treated as rent within the meaning of Section 194-I. Indian Airlines Limited and Asian Paints India Limited were the assessee s regular customers. Indian Airlines had entered into an agreement with the assessee to utilise its hotel services for accommodating their cock-pit crew and Indian Airlines officials. As against the normal room tariff of Rs.2,000/- per day, the Indian Airlines crew were provided accommodation for a sum of Rs.825/-. The court repelled the assessee s contention that the transaction did not envision payment of rent and held that Section 194-I applied. Similarly, rejecting the argument that rent did not contemplate a situation where use of airp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or amounts to letting out, etc. Section 194-I through the Explanation does enlarge the scope of what can be termed as traditional concept of letting or renting, by using the expression other arrangement aimed at permitting use of either immovable property (land and buildings) or other properties (plant, equipment, machinery, etc). The assessee s argument that in the previous decision of this Court the finding that there was no transfer of the right to use the premises concludes the issue entirely in its favour is not correct. The findings or reasoning of a court rendered in the context of one statute or enactment cannot be dispositive of a like intent in the other. It is well known that words do not have a fixed, invariable meaning; being the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used. (Oliver Wendell Holmes). 24. In this case, the terms of the MSA Indus makes available: (1) Infrastructure and specialized services for use by mobile operators; (2) The infrastructure and equipment are always in the control of Indus; (3) Though its customers are given access to the infrastructure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time each mobile operator - which is now Indus customer - used to carry out this activity, by necessarily renting premises and installing the same equipment. Of course, the rent paid then to the owner, whenever such transactions were leases, were business expenses. Yet leases or such like arrangement had to be resorted to. That situation has remained unchanged; now instead of the mobile operator performing the task, it is done exclusively by Indus. The dominant intention however, in these transactions - between Indus and its customers - is the use of the equipment or plant or machinery. The operative intention here, to borrow the phrase from Rajbir Kaur (supra), was the use of the equipment. The use of the premises was incidental; in that sense there is an inseparability to the transaction as spelt out in Sultan Brothers (supra). Therefore the submission of Indus, that the transaction is not renting at all, is incorrect; equally, the revenue s contention that the transaction is one where the parties intended the renting of land (because of the right to access being given to the mobile operators) is also incorrect. The underlying object of the arrangement or agreement (in the M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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