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TMI Blog2016 (6) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... services. It is patent and obvious that the Assessing Officer has relied upon the technical report obtained in case of Vodafone Essar Mobile Services Ltd. Roaming / inter connectivity services are rendered automatically without any human intervention. It is evident from the order passed under sections 201(1) and 201(1A), that the Assessing Officer relying upon the technical report obtained in case of Vodafone Essar [2015 (9) TMI 1358 - ITAT KOLKATA ]. Thus we hold that the roaming / inter–connectivity charges paid by the assessee to other telecom networks not being in the nature of fees for technical services will not attract the provisions of section 194J as there is no human intervention in providing the roaming services. That being the case, assessee was not required to deduct tax at source on payment of roaming charges in terms of section 194J. In view of the aforesaid, we quash the demand raised under sections 201(1) and 201(1A). - Decided in favour of assessee. - ITA No. 2043/Mum./2014, ITA no.2044/Mum./2014, ITA no.2045/Mum./2014 - - - Dated:- 27-5-2016 - Shri Saktijit Dey, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Assessee : Shri Sparsh Bhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to its customer at the first instance and, thereafter, issues bills and realises the proceeds. The Assessing Officer noticed, the assessee company has appointed a number of distributor to manage the distribution business of post paid mobile services where the distributors are supposed to identify the customer, ensure proper documentation of the connection on behalf of the assessee, attend to the complaints of the customers, account for the air time consumed by the customers and carry out the work of raising bills and collection of the proceeds. The Assessing Officer found that in this segment the assessee is paying commission to the distributors for the service rendered by them and is deducting tax at source in terms of section 194H depending upon the payment made. In the second segment, the assessee renders pre paid mobile service. In this segment, the assessee delivers start up kit and recharge coupon vouchers of fixed denomination coupled with specific air time duration to the customers. The customers pay in advance and use start up kits and re charge coupon vouchers by activating their mobile connection provided by the assessee. The Assessing Officer found that simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of tax at source on payments made to the distributors. In response to show cause notice issued by the Assessing Officer, assessee furnishing the agreement with the distributors as well as other documentary evidences, submitted, the distributors place orders on the company on regular basis as and when there stocks get depleted for further purchase of products as far as pre paid start up kits are concerned. It was submitted, distributors after placing the orders make payment of amount which is net of discount allowed by the company and the company also records the revenue in its books of account at the net of the discount. It was submitted, company after receiving the payments delivers the products to the distributor under a valid tax invoice and deliver challan and not under any stock transfer note. The assessee discharges its liability to pay sales tax collected from the distributor as per the tax invoice generated during the month. To substantiate this fact, assessee referred to its books of account where the sim cards are shown as stock in trade. It was submitted by the assessee, it files regular sales tax / VAT returns accounting such sales to the distributors. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an agent on behalf of the principal, provisions of section 194H is not applicable. Thus, it was submitted by the assessee that there being no relationship of principal to agent between the assessee and the distributors as far as pre paid transactions are concerned, there is no liability the assessee to deduct tax under section 194H. In support of such contention, assessee relied upon a number of judicial pronouncements. The Assessing Officer, however, did not find merit in any of the submissions made by the assessee. Ultimately, he concluded that the discount on MRP allowed by the assessee to the distributor is nothing but commission, hence, provisions of section 194H are attracted. He observed, as the assessee has failed to deduct tax in terms of section 194H, assessee should be treated as assessee in default. Accordingly, he proceeded to pass an order under sections 201(1) and 201(1A), raising demand of tax and interest against the assessee. Being aggrieved of the order passed under sections 201(1) and 201(1A) as aforesaid, the assessee preferred appeal before the learned Commissioner (Appeals). 4. Reiterating the stand take before the Assessing Officer, though, assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the decision of the Hon'ble Karnataka High Court, the orders passed by the Departmental Authorities should be set aside. 6. Learned Departmental Representative on the other hand relied upon the decision of Bharti Cellular Ltd. v/s ACIT, [2013] 354 ITR 507 (Cal.). 7. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon by the learned Authorised Representative and the learned Departmental Representative. As could be seen, the Assessing Officer has treated the assessee as assessee in default alleging non deduction of tax at source under section 194H, on the reasoning that it has paid commission to the distributors for selling the pre paid sim card / starter kit and recharge vouchers. However, on a perusal of the facts on records, it is noticed that though the assessee has fixed an MRP on the starter kits / pre paid sim card and recharge vouchers but that is only for the purpose of allowing margin to the distributors. The assessee does not sell the starter kit pre paid sim card to the distributor at the MRP but at a lesser price. The distributor is permitted to sell the starter kit / pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising in appeal relating to the assessment years 2010 11, 2011 12 and 2012 13. In the course of the proceedings under section 201, the Assessing Officer found that the assessee pays roaming charges towards services provided by other operators to the users of the assessee s mobile service. The Assessing Officer, on the basis of information obtained during the survey, found that assessee has paid roaming charges to other operators for using their net work and no TDS has been deducted on such roaming charges. He, further noticed that the term roaming as actually means an arrangement whereby a subscriber of a cellular phone uses cellular service outside the home network. He noticed that the subscriber who is not roaming gets service from his home operator while a subscriber who is roaming will get service from both the host operator and home operator and the host operator charges the home operator for providing telecom services to the subscriber of the later. Based on the usage, the host operator raises invoice on the home operator and the home operator in turn recovers from its own subscribers. The Assessing Officer noted, when a customer of a telecom operator like the assessee make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee failed to deduct tax in terms of section 194J on the payment made towards inter connectivity charges treated the assessee as assessee in default raised demand under sections 201(1) and 201(1A). Being aggrieved of such decision of the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals). 9. The learned Commissioner (Appeals), without much discussion / deliberation, upheld the order of the Assessing Officer observing as under: 4.2 In the instant cases under appeal it is seen that the A.O. has already obtained technical opinion following decision given by Honourable Apex court in Bharti Cellular 2010 TIOL 65 SC IT as in coming out form order itself. In the case when there is no different opinion that it is a service provided by one operator to the other, I am of the view that same needs to upheld. Accordingly, action on of A.O. is upheld. Ground no.10 to 15 are dismissed. 10. Learned Authorised Representative challenging the observations of the Departmental Authorities submitted, the Hon'ble Supreme Court in Bharti Airtel Ltd. (supra), had specifically directed the Departmental Authorities to obtain information of a techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Vodafone Essar Mobile Services Ltd. Further, the Assessing Officer has not given any opportunity to the assessee to cross examine the technical expert. For these reasons alone, the demand raised cannot be sustained. Even otherwise also, as brought to our notice by the learned Authorised Representative, identical issue relating to applicability of the provisions of section 194J to inter connectivity / roaming charges was examined by the Tribunal, Kolkata Bench, in case of Vodafone East Ltd., ITA no.1864/Kol./2012 and Ors., dated 15th September 2015. The Bench, after examining the technical report obtained in case of another company in the group viz. Vodafone Essar Mobile Services Ltd. observed that if the facts are similar, there is no need to set aside the issue to the Assessing Officer for obtaining a fresh technical report in case of the assessee. After analysing the technical report from the expert, the Bench found that the roaming / inter connectivity services provided by other telecom operators is through standard automated services with the aid of existing network / infrastructure used by such operator for providing telecommunication services to their own subscribers. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical Services (FTS) and hence would not fall in the ambit of section 194J of the Act. We find that on further appeal by the revenue to the Hon‟ble Supreme Court in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC) , the Hon‟ble Apex Court had stated that right from 1979 various judgments of the High Courts and Tribunal have taken the view that the words technical services have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly , because the words technical services in section 9(1)(v ii) r.w. Explanation 2 comes in between the words managerial and consultancy services . We find that the principles laid down by the Delhi High Court have been accepted by the apex court as such and the Apex Court has merely directed the TDS officer to carry out factual verification to determine the extent of human involvement. Based on this direction, the CBDT had al so issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12. As per the directions of the Supreme Court in the case of CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enlighten us about the functioning of the network system of the cellular operators at the time of receiving or providing inter-connect services to each other including installation, interconnectivity etc from the very beginning? Ans. 4: As regards to interconnect to Gateway switches/ MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases i) Planning phase- where how much capacity required and how much traffic hand ling capacity is required on these basis hard ware and software is determined. ii) Selection of vendor - is done to determine who will provide these services along with his consultancy. iii) Hardware and software is supplied by the vendor and it is customized to the need of the network as per the TEC specifications. iv) Installation as per vend or guidelines - it involves installation of both hardware and software. v) Call configuration/provisioning of system - in this the opera tor has to configure and make provision in data base as to how the calls will flow. This has to be done by a technically competent person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only when the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another? No, as stated above, no human intervention is required in the process of carriage of calls. However, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc.) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the inter-connect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical expert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of law:- (a) Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that the payments of the wheeling and transmission charges made by the assessee to the entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (P GCIL) for the use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and, consequently, the provisions of section 201 and section 201(IA) could not be applied? (b) Without prejudice to the above, whet her, on the facts and in the circumstances of the case and in law, payment of wheeling and transmission charges to the entitles like MSETCL and P G CIL, should have been treated as fees for technical services and tax should have been deducted at source under section 194J of the Act from the payments? He submitted that in the case of Chhattisgarh State Electricity Board no appeal h ad been filed by the Revenue and the Revenue accepted the decision of the Tribunal which was followed by the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 194-1 of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertake n by it, as a result of the restructuring of the Maharashtra State Electricity Board. It is pertinent to mention here that section 62 of the Act provides that the Commission may, in the case of supply of electricity fix a maximum ceiling of the tariff, in an attempt to promote competition amongst the distribution licensees. Thus, the very concept of the charge for transmission electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence, it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the principles of conceptual interpretation to the tariff to be fixed for the wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the MSEDCL which will be availing of the said transmission facility. No service is being provided by the MSETCL or the State transmission utility. No doubt, MS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3- Whether, where assessee paid wheeling, scheduling and transmission charges to State power utility for using its distribution net work to sell energy generated by assessee to end consumers and same did not involve any human element, assessee was not required t o deduct TDS under section 19 4JHeld, yes [Para 6] in favour of assessee c) DCIT vs Delhi Trans co Ltd reported in (2014) 52 taxmann.com 261 (Delhi This finding has been followed by the ITAT in ITA No. 3965/ Del/2011 in the case of assessee for Assessment Year 2006-07. Apart from the finding of tribunal recorded in the assessee‟s own cases, we deem it pertinent to take note of the finding recorded by the tribunal in the case of Chhattisgarh State Electricity Board vs.- ITO (supra) (2012) 50 SOT 33 (Mum.)- No further appeal to High Court by Department. The relevant finding read as under : 11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or powergrid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the Act. 12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194-I of the Act, and analyze the same. Section 194-I provides as follows: Any person, not being an individual or a Hindu undivided family, who is responsible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 194-I come into play on the facts of this case. 14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194-I. 15. Explanation (i) to Section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement for the use of land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. v. Asstt. Commr. of Commercial Taxes [2001] 124 STC 426 (Kar.), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168, in the following terms: 9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of sale . On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. . 17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194 I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Tanay Krishna, in case of Vodafone Essar Mobile Services Ltd., who incidentally also submitted the report in case of Bharti Cellular Ltd., and the cross examination of Shri Tanay Krishna, the ITAT, Kolkata Bench, has found that the roaming / inter connectivity services are rendered automatically without any human intervention. It is evident from the order passed under sections 201(1) and 201(1A), that the Assessing Officer relying upon the technical report obtained in case of Vodafone Essar (Supra), has raised the demand against the assessee inferring that roaming charges ware in the nature of fees for technical services, hence, coming within the purview of section 194J. However, as stated earlier, the very same report from the technical expert in case of Vodafone Essar Mobile Services Ltd., was considered and analysed by the Tribunal, Kolkata Bench (supra) and the Bench held that there is no human intervention in providing the roaming services. That being the case, following the observations of the Tribunal, Kolkata Bench, referred to above, we hold that the roaming / inter connectivity charges paid by the assessee to other telecom networks not being in the nature of fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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