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TMI Blog2024 (8) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... ent explicitly acknowledges the need for human intervention in various critical aspects of roaming services, such as discussing impacts and taking necessary actions upon any change in the system or network, providing customer care support, addressing network faults through coordination between customer care and technical teams, handling issues related to lost/stolen SIM cards or mobile equipment, and resolving billing inquiries or disputes. Tribunal also accepted the presence of human intervention, however holding that for connecting a roaming call, human intervention is not required. We wish to point out few situations, which in our opinion the Tribunal has not considered. Two such situations, as it existed then and also now, is the option to manually select a network when one goes out of the home network at the subscribers end or to activate international roaming. When the subscriber selects another network when the service is either down or when the service provider does not provide any service in any particular area or country and when there are glitches or connectivity issues, it is only through human intervention, it can be resolved. Similarly, the activation of international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which erroneously held that the assessee was not liable to deduct tax at source on the roaming charges paid, is set aside and the matter is remanded back to the Tribunal for fresh consideration. Tax case appeals preferred by the Revenue are allowed and the matter is remanded back to the Tribunal for fresh consideration. - Hon'ble Mr. Justice R. Mahadevan And Hon'ble Mr. Justice Mohammed Shaffiq For the Appellant in all TCAs : Mr. B. Ramaswamy Senior Standing Counsel for Income Tax For the Respondent in all TCAs : Mr. Vishnu Mohan COMMON JUDGMENT R. MAHADEVAN, J. These tax case appeals are preferred by the appellant/Revenue, calling in question the correctness of the common order dated 20.07.2015 passed by the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, in the respective I.T.A. No. 322/Mds/2014, I.T.A. No. 323/Mds/2014, I.T.A. No. 324/Mds/2014, I.T.A. No. 327/Mds/2014 and I.T.A. No. 329/Mds/2014, by raising the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the proceedings under Sections 201(1) and 201(1A) cannot be sustained on the ground that the tax need n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racting the provisions of Section 194J of the Act, which mandates deduction of tax at source. 2.3. Aggrieved by the assessment orders, the respondent filed appeals before the Commissioner of Income Tax (Appeals) (in short, CIT(A) ). By a common order dated 30.12.2013, the CIT(A) confirmed the orders of the Assessing Officer, on the premise that human intervention is necessary and unavoidable in the process of providing roaming services by the other telecom operators to whom the respondent had paid the roaming charges. The relevant portion of the order is extracted below for ready reference: 8.3. Roaming charges:- 8.3.1 During the assessment year under reference, the appellant has booked Rs. 49,26,563/- under the head 'Roaming charges', which was not considered for deducting tax. Similarly for other assessment years in appeal, the appellant booked amounts under roaming charges . The amount booked under 'Roaming charges' has been paid by the appellant to sundry Telecom service operators for understanding what roaming charges mean, the appellant itself has defined 'Roaming' as follows viz., 'Roaming means an arrangement whereby a subscriber of a cellular ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e home operators as they constitute taxable income in their hands. As far as the host operator is concerned, it is an income received from the appellant and the same is taxable. The intention of TDS provisions is to expedite the collection of tax at the earliest point of time. When the amount viz., roaming charges becomes liable to be taxed when it reaches the hands of the payee, naturally the same amount will be liable for tax deduction (TDS) in the hands of the payer as well. It is to be noted that the payer deducts and pays the tax from the amount on behalf of the payee only before parting with the amount. Thus it is very much clear beyond doubt that the roaming charges are taxable and therefore tax is to be deducted by the giver as the same shall constitute taxable income in the hands of the payee, the moment it reaches him. 8.3.3. Without prejudicing what is stated in the above paragraph, the issue may be examined in the light of the definition for FTS as provided in the explanation to Section 9(1)(vii) of the I.T.Act, 1961 which reads as under:- 'For the purposes of this clause, fees for technical services means any consideration (including any lumpsum consideration) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sundry host operators, the AO has righlty held the appellant as assessee in default and passed the impugned order dated 27.03.2023. The above proposition is applicable to all the assessment years in question. Hence, I am not inclined to interfere with the orders of the AO in respect of all assessment years in appeal. 8.3.6. The ARs contended that the issue with regard to tax withholding obligation under Section 194J of the Act on telecom services has already been settled by the Jurisdictional High Court in the case of M/s.Skycell Communications and Another Vs. DCIT 251 ITR 53. It was also argued that it is a well settled legal position that the characterization of a payment must be done having regard to the dominant purpose/intention of the payment. Reliance was placed on the decision in the case of CIT(TDS) Vs. Glenmark Pharmaceuticals Limited 324 ITR 199 (Bom.). The ARs also relied on the following case laws:- 1. CIT Vs. Eskel Communications Pvt. Ltd., 217 CTR 102 (Delhi). 2. Bharti Cellular Limited (2008) - TIOL - 557 (Delhi) 3. Siemens Limited Vs. CIT (TS-51-ITAT-2013) (Mumbai Tribunal). The appellant tried to argue that for classifying the services as FTS, human intervention i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng necessary system configurations. After necessary configuration for providing roaming services, human intervention is not required. Once human intervention is not required, as found by the Apex Court, the service provided by the other service provider cannot be considered to be a technical service. 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. It is due to configuration of software system in the respective service provider's place. In fact, the Sub-Divisional Engineer of BSNL has explained as follows in response to Question No.23:- Regarding roaming services as explained to question no.21. Regarding interconnectivity, initially human intervention is required for establishing the physical connectivity and also for doing the required configuration. Once it is working fine, no intervention is required. In case of any faults human intervention is required for taking necessary corrective actions. In view of the above, once configuration was made, no human intervention is required for connecting the roaming calls. The subscriber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The learned senior standing counsel would further contend that the assessee has violated the provision of Chapter XVII-B of the Act, filing of TDS statement in respect of deduction made out of the payments other than roaming charges, provisions etc., which fall under other sections of chapter XVII-B inviting the consequence of Section 201 of the Act. Roaming charges from one mobile operator to the other for providing local service whenever a customer goes into the alien network on the basis of pre-existing agreement. The object of the agreement was to obtain the benefit of the technical assistance for running the business. The fees are paid to the payee for rendering technical services with men and materials. This postulates that the contract for the supply of technical services for predetermined fees depending on the use of alien network on a timesharing basis. 5. The learned senior standing counsel would further point out that the roaming charges paid qualify as fees for technical services under Section 194J, necessitating TDS deduction by the assessee. Alternatively, it is submitted that even if human intervention is considered necessary only for maintenance of the telecom s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, and applies even when these services are rendered within a hospital setting. The learned senior standing counsel, reiterating Section 9(1)(vii) of the Income Tax Act, submits that whenever there is human intervention, it should be considered as both technical and human services. It is not limited to payments to individuals who are professionals themselves; it can also apply to corporate entities, like hospitals, offering services connected to the specified professions. 7. In support of his contentions, the Learned Standing Council further relied upon the following decisions: 7.1 The learned senior standing counsel also referred to the decisions (a) Prabhudas Damodar Kotecha Vs. Manhabala Jeram Damodar (AIR 2013 SC 2959); State of Bombay Vs. Hospital Mazdoor Sabha (AIR 1960 SC 610); and Rohit Pulp Paper Mills Ltd. Vs. Collector of Central Excise, Baroda (AIR 1991 SC 754) to drive home the principle that the principle of Noscitur a Sociis is not to be applied when the meaning of the words are clear and can be attributed wide meaning. 7.2. Interpretation of 'Technical Service': 7.2. (a) M/s. Continental Construction Ltd Vs. Commissioner of Income Tax, Central (AIR 1992 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee for the rendering of the technical services under the contract. The High Court has pointed out that a person who manufactures a television set ordered by another cannot be said to render technical services to the latter. In our view, that analogy is not apposite in the context of a contract of the nature, magnitude and specialisation with which we are concerned. Where a person employs an architect or an engineer to construct a house or some other complicated type of structure such as a theatre, scientific laboratory or the like for him, it will not be incorrect to say that the engineer is, in putting up the structure, rendering him technical services even though the actual construction and even the design thereof may be done by staff and labour employed by the engineer or architect. Where a person consults a lawyer and seeks an opinion from him on some issue, the advice provided by the lawyer will be a piece of technical service provided by him even though he may have got the opinion drafted by a junior of his or procured from another expert in the particular branch of the law. Sri Ahuja tried to negative this line of thinking by urging that professional services hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so providing for professional and other services in connection with operating of the hotel. Section 80O was enacted with the twin objects of encouraging the export of Indian technical know-how and augmentation of foreign exchange resources of the country. We have seen above that after the amendment of Section 80O by Finance (No. 2 Act of 1991) the words technical or professional services have been inserted in place of the words technical services . But this Court in Continental Construction Ltd. case took the view that the amendment was only of clarificatory nature and the term technical services always included within it professional services as well. This Court has gone even to the extent that when a person consults the lawyer and seeks his opinion on certain issue the advice rendered by the lawyer would be a piece of technical service. Considering the scope of the agreement and the width of Section 80O we are of the opinion that the agreement provides for information concerning industrial, commercial or scientific knowledge, experience or skill made available by the respondent to the foreign enterprise for running of the Hotel Soaltee. Mr. Dave is right when he submits that in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which it possesses for earning foreign exchange for the country. 7.2. (c) Goa Carbon Ltd. Vs. V.M.Muthuramalinga [(2003) 126 Taxmann 313 (Bom)] : Interpretation of the term 'technical service'. 7. As we discussed earlier, the entire amount of 183,000 Canadian dollars will fall under the definition of royalty as meant under Explanation 2 to Section 9 of the Income Tax Act. Learned counsel for the Department, however, has strongly contended that the 20 per cent, rate is only applicable to technical engineering consultancy charges amounting to 12,000 Canadian dollars because, according to him, royalty for transfer of drawings and designs alone attracts tax at the rate of 20 per cent. All other two heads, namely, for transfer of technology and technical engineering consulting charges will come under technical services. As indicated above, the Explanation to Clause (vii) of Explanation 2 to Section 9 of the Income Tax Act has clearly defined what is ''technical services . Technical services have been defined as managerial, technical or consultancy services including the provision of services of technical or other personnel. But the agreement in question does not prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Company. Furthermore, he submits that pursuant to the common order passed by the National Company Law Tribunal, Mumbai Bench on 09.06.2020, the resolution plan submitted by M/s.UV Asset Reconstruction Company has been approved. This plan has been published and uploaded on the website of NCLT on 18.06.2020, and the CIRP stands concluded. He further submits that the implementation of the resolution plan, as sanctioned by the NCLT, Mumbai, is subject to certain conditions precedent. He points out that the present proceedings arose from the demand raised by the Commissioner of Income Tax, Chennai, pertaining to the period before the insolvency commencement date (i.e., 19.03.2018) of the Company. Additionally, he states that purported dues towards the appellant would have been in the nature of operational debt under the provisions of the code, being dues arising under income tax laws and payable to a Government authority. As per the provisions of the Code, all creditors of the Company are required to submit claims regarding dues against the company for the period before the insolvency commencement date. The learned counsel further states that paragraph No.6.7.1 of the Approval Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t telecom circles or outside the country. The roaming service enables subscribers to make and receive voice calls, access data, and other services seamlessly in different geographical areas without manual intervention. The roaming agreements between telecom operators facilitate automatic connectivity for subscribers when they travel outside their home network area. He would further submit that the Expert opinion from a Sub-Divisional Engineer of BSNL clarifies that roaming services do not require continuous human intervention once the necessary configurations are set up. Human intervention is primarily needed for system configurations and maintenance, not for connecting calls during roaming, as the system automatically handles the connections. The learned counsel would highlight that roaming charges are payments made by the assessee to other telecom service providers for technical services, which are then utilized by subscribers during roaming. The argument is made that the roaming charges should not be categorized as fees for technical services, as the service is provided without continuous human intervention once the initial configurations are in place. He would further argue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the same would be taxable in the hands of the Assessee Company by virtue of Section 201 of the Act or not. 3. As a fact, it was brought to our notice by Mr.Vishnu Mohan, learned counsel for the Respondent/Assessee that the company is subject matter of Insolvency Proceedings under the provisions of IBC Code 2016 and NCLT has recently approved the Resolution of the Committee of Creditors in which the drastic cut for payments to be made to various Creditors, including the Tax Department, has been approved by the NCLT. A copy of that order may be placed on the record of this court. 4. However, we are, prima facie of the opinion that pendency of the proceedings before the NCLT or approval of any such Scheme of Resolution of Insolvency may not affect the answering of the substantial questions of law arising in the present Appeals under Section 260A of the Act, as such Insolvency Resolution may only affect the final recovery part of taxes depending upon the answers to the questions raised in the present Appeals, by the High Court under Section 260A of the Act. 5. According to the learned counsels, after the decision of the Delhi High Court in the year 2008 on the said question, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deal with the overriding effect of the Insolvency and Bankruptcy Code and other laws in specific contexts. However, in the recent judgement, the Hon ble Apex Court in the case of State Tax Officer V Rainbow Papers Limited (2022 Livelaw (SC) 743:2023 (9) SCC 545), affirmed again by dismissal of the review petition in Sanjay Agarwal V.State Tax Officer (2023 Livelaw (SC) 939: 2024 (2) SCC 362), has clearly laid down that the state by operation of law is also a secured creditor when statutory taxes remain unpaid, the claims cannot be ignored while following the Waterfall Mechanism under Section 53 of the IBC in the Resolution Plan and should rank equally with other specified debts. Though lengthy, we feel it necessary to extract relevant portion of the order in Rainbow Papers Limited Case (Supra), which is as under: 22. Prior to amendment by Notification No. IBBI/2018-2019/GN/REG013 dated 3-7-2018, with effect from 4-7-2018, sub-regulation (1) of Regulation 12 read with sub-regulation (2) provided that a creditor shall submit proof of claim on or before the last date mentioned in the public announcement. Sub-regulation (2) was amended with effect from 4-7-2018 and now reads a credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing payment or performance of any obligation of any person. 30. The learned Solicitor General rightly argued that in view of the statutory charge in terms of Section 48 of the GVAT Act, the claim of the Tax Department of the State, squarely falls within the definition of security interest under Section 3(31) IBC and the State becomes a secured creditor under Section 3(30) of the Code. 31. Mr Nataraj, Additional Solicitor General submitted that the appellate authority, Nclat has held that the Tax Department of the State does not fall within the meaning of secured creditor . Nclat has, according to Mr Nataraj, come to such a conclusion on the erroneous premise that Section 48 of the GVAT Act, 2003, cannot prevail over Section 53 IBC. 32. The learned ASG argued that, it was not the case of the appellant that Section 48 of the GVAT Act prevails over Section 53 IBC. It was the case of the appellant that the State falls within the purview of secured creditor . 48. A resolution plan which does not meet the requirements of subsection (2) of Section 30 IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on commencement date. 57. As observed above, the State is a secured creditor under the GVAT Act. Section 3(30) IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in IBC does not exclude any Government or Governmental Authority. 58. We are constrained to hold that the appellate authority (Nclat) and the adjudicating authority erred in law in rejecting the application/appeal of the appellant. As observed above, delay in filing a claim cannot be the sole ground for rejecting the claim. 59. The appeals are allowed. The impugned orders [Tourism Finance Corpn. of India Ltd. v. Rainbow Papers Ltd., 2019 SCC OnLine NCLAT 910] , [STO v. Chandra Prakash Jain, 2020 SCC OnLine NCLAT 536] are set aside. The resolution plan approved by the CoC is also set aside. The resolution professional may consider a fresh resolution plan in the light of the observations made above. However, this judgment and order will not prevent the resolution applicant from submitting a plan in the light of the observations made above, making provisions for the dues of the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of deduction of tax at source. 15. The respondent-assessee is a major telecom company providing cellular and data services across India through its vast network. To ensure seamless connectivity for its subscribers traveling outside the home network area, including abroad, the respondent enters into roaming agreements with other telecom service providers. 16. During the relevant assessment years 2007-08 to 2011-12, the respondent made substantial payments as roaming charges to these other operators without deducting any tax at source under Section 194J. According to the respondent, the roaming services are automated processes without human intervention as the words managerial and consulting services is used in the provision, and hence, the roaming charges do not qualify as fees for technical services. The further contention on behalf of the respondent is that the automated services is general and applicable to all and not customer specific and hence cannot be classified as technical services . All the judgments relied upon by the Learned Counsel for the respondent drive home the above principles. Much emphasis has been made on the judgment of this Hon ble Court in Sk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1. - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2. - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or life project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head salaries . Before adverting further into the scope of Technical Service , it would be necessary to point out that the CIT (A) has held that human intervention is not necessary to fall within the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. We make it clear that the assessee(s) is not at fault in these cases for the simple reason that the question of human intervention was never raised by the Department before CIT. It was not raised even before the Tribunal; it is not raised even in these civil appeals. However, keeping in mind the larger interest and the ramification of the issues, which is likely to recur, particularly, in matters of contracts between Indian companies and multinational corporations, we are of the view that the cases herein are required to be remitted to the assessing officer (TDS). 10. Accordingly, we are directing the assessing officer (TDS) in each of these cases to examine a technical expert from the side of the Department and to decide the matter within a period of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent 1 to examine its expert and to adduce any other evidence. 11. Before concluding, we are directing CBDT to issue directions to all its officers, that in such cases, the Department need not proceed only by the contracts placed before the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M Roaming Agreement clearly establish that human intervention and technical expertise are integral and indispensable components for the smooth, efficient, and uninterrupted operation of roaming services as a whole. The Roaming Agreement explicitly acknowledges the need for human intervention in various critical aspects of roaming services, such as discussing impacts and taking necessary actions upon any change in the system or network, providing customer care support, addressing network faults through coordination between customer care and technical teams, handling issues related to lost/stolen SIM cards or mobile equipment, and resolving billing inquiries or disputes. The Tribunal also accepted the presence of human intervention, however holding that for connecting a roaming call, human intervention is not required. We wish to point out few situations, which in our opinion the Tribunal has not considered. Two such situations, as it existed then and also now, is the option to manually select a network when one goes out of the home network at the subscribers end or to activate international roaming. When the subscriber selects another network when the service is either down or when ..... 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