2015 (7) TMI 109 - AT - Income Tax

Tribunal upholds CIT(A) decisions on technical services and export turnover exclusion

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both issues. Internet services were not considered technical services ... TDS on payment made for Internet services i.e. leased line benefits/broadband services - Whether are not in the nature of technical services and do not attract the provisions of sec.194J - Held that:- The issue is covered in favour of the assessee by the decision of this Tribunal in the assessee's own case for assessment year 2009-10 to which both of us are signatories. The interconnect/port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is 'technical' in the sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But, when we are required to interpret the expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed. And, only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service' and 'consultancy service' as appearing in Expln. 2 to s. 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. The interconnect charges/ port access charges cannot be regarded as fees for technical services - Decided against revenue. Exclusion of reimbursement of certain expenses both from the export turnover as well as from the total turnover for the purpose of computation of deduction u/s 10A - Held that:- This issue also is covered in favour of the assessee by the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] it is held whatever is excluded from the export turnover should also be excluded from the total turnover for the purpose of computing deduction u/s.10A of the Act. - Decided against revenue. Issues Involved:1. Whether internet services such as leased line benefits/broadband services are considered technical services under Section 194J of the Income-tax Act, 1961.2. Whether the reimbursement of certain expenses should be excluded from both the export turnover and the total turnover for the purpose of computing deduction under Section 10A of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Internet Services as Technical Services under Section 194JThe primary contention was whether payments for internet services (leased line benefits/broadband services) fall under the category of technical services, thereby necessitating the deduction of tax at source (TDS) under Section 194J of the Income-tax Act, 1961.Findings:- The Assessing Officer (AO) had disallowed Rs. 36,11,140/- under Section 40(a)(ia) for non-deduction of TDS, considering the services as technical.- The CIT(A) deleted this addition, relying on the Delhi High Court's judgment in the case of CIT vs. Estel Communications Pvt. Ltd., which held that purchasing internet bandwidth does not equate to paying for technical services.- The Tribunal upheld the CIT(A)'s decision, referencing its own previous judgment in the assessee's case for the assessment year 2009-10 and the Hon'ble Bombay High Court's decision in Skycell Communications Ltd. vs. DCIT. Both judgments clarified that technical services under Section 194J involve a human element, which is absent in the automated provision of internet services.- The Tribunal emphasized the rule of noscitur a sociis, indicating that the term 'technical services' should be interpreted in the context of 'managerial' and 'consultancy' services, both of which involve human intervention.- Consequently, the Tribunal concluded that payments for internet bandwidth do not require TDS under Section 194J, and the disallowance under Section 40(a)(ia) was not warranted.Issue 2: Exclusion of Reimbursement of Expenses from Export Turnover and Total Turnover for Section 10A DeductionThe second issue was whether certain reimbursed expenses should be excluded from both the export turnover and the total turnover when computing the deduction under Section 10A of the Income-tax Act, 1961.Findings:- The CIT(A) directed the AO to exclude the reimbursed expenses from both the export turnover and the total turnover.- This direction was based on the jurisdictional High Court's ruling in Tata Elxsi Ltd., which established that any expenditure excluded from the export turnover must also be excluded from the total turnover for the purpose of Section 10A deductions.- The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere, as it was in line with the High Court's judgment.Conclusion:The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both issues. The internet services were not deemed technical services under Section 194J, and the reimbursed expenses were to be excluded from both export turnover and total turnover for Section 10A deduction computation. The judgment was pronounced in the open court on 17.4.2015.