2021 (11) TMI 36 - AT - Income Tax

Tribunal directs AO on deduction disallowance and credit grant in tax cases

Verizon Communications India Pvt. Ltd. Versus Addl. CIT Special Range-9 New Delhi

The Tribunal directed the AO to delete the proportionate disallowance of deduction claimed under Section 80IA, disallowance of telecommunications expenses ... Proportionate disallowance of deduction claimed u/s. 80IA - services provided pursuant to ILD/NLD license constitute a new and independent undertaking - assessee claimed deduction u/s 80IA of the Act on profits derived from telecommunication services including the services rendered pursuant to these licenses for the assessment years under consideration - Since the assessee did not provide any segmental income expenditure for NLD and ILD services, proportionate disallowance is made on the basis of revenue - HELD THAT:- Since the factual matrix and the arguments are identical. Facts consider in A.Y. 2011-12, respectfully following the decision of the coordinate bench we direct the AO to delete the proportionate disallowances. TDS U/S 195 - Addition u/s. 40(a)(i) for non-withholding of taxes - Disallowance of telecommunications expenses paid to Foreign Telecom Operators - assessee contracts with its customers for providing data transmission services in India and overseas in a safe and secure manner - HELD THAT:- On finding parity of facts with the facts of A.Y. 2011-12 respectfully following the findings of this Tribunal (supra) we direct the AO to delete the disallowance. TDS u/s 194J - Disallowances of telecommunication expense paid to Domestic Telecom Operators - AO disallowed the payments made for these telecom connectivity services - HELD THAT:- It is true that the agreement between the assessee, Bharti Airtel and Reliance clearly show that each party was responsible for its network and for the provisions of services related to it. We are of the considered view that the telecom operators provided connecting, transit and termination services to each other on a reciprocal basis and neither of the parties had any rights in the equipments or in the network of the other parties. The FTOs do not grant any possession or control of any equipment or in the network deployed by them to the assessee. As relying on case of Bharti Airtel [2016 (3) TMI 680 - ITAT DELHI] payment cannot be termed as covered by Explanation 2 read with Section 9(vi) - Decided in favour of assessee. Short grant of credit for TDS - HELD THAT:- We find that on short grant of TDS given by the AO, the assessee has moved a rectification application which has not been disposed of till date. We direct the AO to consider the claim of the credit of TDS as per the provisions of the law and decide the rectification application expeditiously. Issues Involved:1. Proportionate disallowance of deduction claimed under Section 80IA of the Act.2. Disallowance of telecommunications expenses paid to Foreign Telecom Operators.3. Disallowance of telecommunications expenses paid to Domestic Telecom Operators.4. Short grant of credit for Taxes Deducted at Source (TDS).Detailed Analysis:1. Proportionate Disallowance of Deduction Claimed under Section 80IA of the Act:The first common grievance pertains to the proportionate disallowance of deduction claimed under Section 80IA of the Act. The assessee, who commenced providing telecommunication services in May 2002, claimed a deduction under Section 80IA on profits derived from these services, beginning in A.Y. 2007-08. This claim was initially allowed by the AO. However, in January 2008, the assessee obtained NLD and ILD licenses and continued providing enhanced telecommunication services. The AO opined that services provided under these licenses constituted a new and independent undertaking, not complying with the condition that telecommunication services should commence prior to April 1, 2005. Consequently, a proportionate disallowance was made. The CIT(A) upheld this disallowance. The Tribunal, referencing its decision in the assessee’s own case for A.Y. 2011-12, directed the AO to delete the proportionate disallowances, finding the arguments and factual matrix identical.2. Disallowance of Telecommunications Expenses Paid to Foreign Telecom Operators:The second common grievance involves the disallowance of telecommunications expenses paid to Foreign Telecom Operators (FTOs). The assessee had agreements with MCI Communication Services Inc. and MCI International Inc. for providing telecommunication services outside India, making payments to FTOs for these services. The AO disallowed these payments under Section 40(a)(i) for non-withholding of taxes. The CIT(A) confirmed the disallowance, rejecting the assessee’s argument that no withholding was required under Section 195 as the payments were not chargeable to tax in India under the Act and the India-US DTAA. The Tribunal, aligning with its decision for A.Y. 2011-12, directed the AO to delete the disallowance, finding no distinguishing decision favoring the revenue.3. Disallowance of Telecommunications Expenses Paid to Domestic Telecom Operators:The next grievance concerns the disallowance of telecommunications expenses paid to Domestic Telecom Operators (DTOs). The assessee, lacking the infrastructure to provide services in certain parts of India, procured telecom connectivity services from Indian operators like Bharti Airtel and Reliance. The AO disallowed these payments under Section 40(a)(ia) for non-withholding of taxes under Section 194J. The CIT(A) upheld this disallowance. The Tribunal, referencing its decision in Bharti Airtel Limited’s case, concluded that the telecom operators provided connecting, transit, and termination services on a reciprocal basis, without granting any rights in the equipment or network. The Tribunal directed the AO to delete the disallowance, citing the agreement terms and the Tribunal’s findings in the Bharti Airtel case.4. Short Grant of Credit for Taxes Deducted at Source (TDS):The final grievance relates to the short grant of credit for TDS in A.Y. 2013-14 and 2015-16. The Tribunal noted that the assessee had moved a rectification application regarding the short grant of TDS, which had not been disposed of. The Tribunal directed the AO to consider the claim for TDS credit as per the law and expedite the rectification application process.Additional Notes:- Ground Nos. 15 and 16 for A.Y. 2010-11 were not pressed and were disposed of as not pressed.- The appeals ITA No. 2234/Del/2019 was partly allowed, while ITA No. 7297/Del/2017 and 6509/Del/2019 were allowed.Order pronounced in the open court on 20.10.2021.