2015 (1) TMI 236 - AT - Income Tax

Tribunal rules datalink charges not subject to TDS, assessee not liable for interest

iGATE Computer Systems Ltd. (earlier known as Patni Computer Systems Limited) Versus The Dy. Commissioner of Income Tax (TDS)

iGATE Computer Systems Ltd. (earlier known as Patni Computer Systems Limited) Versus The Dy. Commissioner of Income Tax (TDS) - TMI Issues Involved:1. Liability of datalink charges to TDS under section 194J.2. Requirement of human intervention for datalink services.3. Applicability of interest under section 201(1A) if recipients have included datalink charges in their taxable income.Detailed Analysis:1. Liability of datalink charges to TDS under section 194J:The primary issue was whether datalink charges paid by the assessee were liable to TDS under section 194J of the Income Tax Act. The ACIT-TDS argued that the datalink charges should be subject to TDS as they constituted fees for technical services. The assessee contended that these charges were for using standard facilities provided by service providers through technical gadgets, without human intervention, and thus should not be considered technical services. The CIT(A) upheld the ACIT's view, stating that customer support indicated human intervention, making the charges subject to TDS under section 194J. However, the Tribunal reversed this finding, concluding that the use of technical equipment for data transmission without significant human intervention did not constitute technical services under section 194J.2. Requirement of human intervention for datalink services:The Tribunal examined whether human intervention was necessary for the datalink services to be classified as technical services. The CIT(A) had noted that human intervention was required for maintenance and customer support, implying that the services were technical. The Tribunal, however, found that the primary function of datalink services involved automated technical equipment with minimal human involvement, primarily for maintenance. Citing precedents like Skycell Communications Ltd. Vs. DCIT and Infosys Technologies Ltd. Vs. DCIT, the Tribunal held that the mere use of technical gadgets did not amount to technical services requiring TDS under section 194J.3. Applicability of interest under section 201(1A) if recipients have included datalink charges in their taxable income:The assessee argued that even if TDS was applicable, no demand under section 201(1) should be raised if the recipients had included the datalink charges in their taxable income, and at most, the assessee should be liable for interest under section 201(1A). The CIT(A) accepted this argument, directing the DCIT to modify the demand based on proof of tax payment by the recipients and to calculate interest on an actual basis. The Tribunal upheld this view, stating that since there was no requirement for TDS under section 194J, the assessee was not liable for interest under section 201(1A).Conclusion:The Tribunal concluded that datalink charges were not liable for TDS under section 194J as they did not constitute technical services involving significant human intervention. Consequently, the assessee was not liable to pay interest under section 201(1A). The appeals were allowed, reversing the CIT(A)'s findings and providing relief to the assessee.