2010 (8) TMI 332 - SC - Income Tax

Remand for fresh TDS adjudication with expert evidence; interest under section 201(1A) not justified at this stage

Commissioner of Income-tax Versus Bharti Cellular Ltd. & Hutchison Essar Telecom Ltd.

SC remitted TDS disputes to the Assessing Officer (TDS) for fresh adjudication, directing the AO to obtain and examine a technical expert for the ... TDS - Section 194J - interconnects agreement - 'fees for technical services' under section 194J - Whether TDS was deductible by M/s. Bharti Cellular Limited when it paid interconnect charges/access/port charges to BSNL - HELD THAT:- 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 the Commissioner of Income-tax. 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). 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. Libertyis also given to respondent No. 1 to examine its expert and to adduce any other evidence. We do not know the constraints of the Department but the time has come when the Department should understand that when the case involves revenue running into crores, technical evidence would help the Tribunals and courts to decide matters expeditiously based on factual foundation. The learned Attorney General, who is present in the court, has assured us that our directions to the Central Board of Direct Taxes would be carried out at the earliest. Regarding interest u/s 201(1A) - it would not be justified for the following reasons: Firstly, there is no loss of revenue. It is no doubt true that TDS has not been deducted by the payee but the tax has been paid by the recipient. Secondly, the question involved in the present cases is the moot question of law, which is yet to be decided. Basically, we would have closed the file because these cases are only with regard to levy of interest but we are remitting these cases, as stated above, to the Assessing Officer (TDS) only because we are of the view that this issue is a live issue and it needs to be settled at the earliest. Once the issue gets settled, the Department would be entitled to levy both penalty and interest but, as far as the facts and circumstances of the present cases are concerned, we are of the view that the interest is not justified at this stage. Issues involved:1. Interpretation of 'fees for technical services' under the Income-tax Act, 1961 in the context of interconnect agreements between cellular service providers.2. Examination of manual intervention in technical operations during interconnection processes.3. Consideration of revenue sharing contracts and applicability of section 194J of the Act.4. Assessment of interest under section 201(1A) and penalty for non-deduction of TDS.Interpretation of 'fees for technical services':The key issue in this judgment revolves around determining whether TDS was deductible by a cellular service provider when paying interconnect charges to BSNL/MTNL. The court delved into the definition of 'fees for technical services' under the Income-tax Act, emphasizing the need to interpret it in a narrower sense, especially in comparison to managerial and consultancy services. The absence of expert evidence regarding manual intervention during call processes raised concerns, highlighting the necessity for technical assistance in such matters. The judgment stressed the importance of technical data in understanding capacity allocation and the potential for human intervention in urgent capacity adjustments. The court recommended reassessment by the Assessing Officer with technical expert input to address these complex technical aspects.Consideration of revenue sharing contracts:The judgment also addressed the argument that interconnect agreements based on revenue sharing do not fall under section 194J of the Act. The court acknowledged this contention but noted that it had not been thoroughly examined by the Tribunal. While absolving the assessee of fault due to the Department's failure to raise the issue of human intervention earlier, the court highlighted the need for reconsideration by the Assessing Officer to ensure a comprehensive assessment of such contracts. The judgment underscored the significance of technical expertise in resolving disputes related to revenue sharing contracts between companies.Assessment of interest and penalty:Regarding the levy of interest under section 201(1A) and penalties for non-deduction of TDS, the court decided against imposing interest due to the absence of revenue loss and the pending resolution of the legal question at hand. Recognizing the live nature of the issue, the court remitted the cases to the Assessing Officer for further adjudication. The judgment clarified that once the legal issue is settled, the Department may levy penalties and interest accordingly, but in the present circumstances, interest was deemed unjustified. The court emphasized the need for expeditious resolution of technical matters to facilitate efficient decision-making by appellate forums.In conclusion, the Supreme Court's judgment in this case highlighted the complexities surrounding technical operations in interconnect agreements, the interpretation of 'fees for technical services,' the implications of revenue sharing contracts, and the assessment of interest and penalties under the Income-tax Act. The court emphasized the necessity of technical expertise in resolving such disputes and directed the Assessing Officer to reexamine the cases with the assistance of technical experts to ensure a thorough and fair assessment.