2022 (1) TMI 343 - AT - Income Tax

Tribunal rules in favor of assessee, remands back to AO for detailed examination

DCIT (TDS) -2 (3), Mumbai Versus M/s. Vodafone Idea Ltd. (formerly known as Vodafone India Ltd.) And (Vice-Versa)

The Tribunal dismissed all Revenue's appeals and allowed the assessee's appeals for statistical purposes, remanding the matters back to the AO for a ... TDS u/s 194J - interconnection usages charges (IUC) - taxability of roaming charges - Fees for Technical Services (FTS) - HELD THAT:- As relying on M/S. TATA TELESERVICES (MAHARASHTRA) LIMITED VERSUS ASSTT. COMMISSIONER OF INCOME TAX, TDS–3 (1) , MUMBAI VICE-VERSA [2016 (6) TMI 174 - ITAT MUMBAI] and M/S. VODAFONE SOUTH LTD., [2016 (8) TMI 422 - KARNATAKA HIGH COURT]the said payments are not liable for deduction of tax at source u/s. 194J - payment made by the telecom company to another Company for utilization of network cannot be termed as Technical service as accessing the network during calls is a fully automatic process and did not require any human intervention. There are no Technical services involved during the process of telecom/data traffic flow and hence such payments cannot be termed as 'Fees for Technical Services' and therefore, no TDS was deductible on such payments -Decided in favour of assessee. Deductibility of TDS on discount extended to its pre-paid distributors on distribution of pre-paid talk time - HELD THAT:- Ld.CIT(A) has passed an unclear and somewhat self-contradictory order. On the issue, he initially observes about Hon’ble Karnataka High court decision being in favour of the assessee. Thereafter, he observes that some of the revenue’s contentions have been accepted by the Hon’ble High court. Thereafter, he observes that in accordance with the Hon’ble High Court directions certain information was required from the assessee. After the receipt of information, he does not examine the same himself. He seeks for a remand from the AO. We find considerable cogency in the submission of the ld counsel that the details were submitted before ld CIT(A), who has not examined the same himself but has asked for the remand from the AO and he accepted the AO’s remand. He noted that the assessee could not explain accounting in the books as books were not available and benefit of doubt cannot be given to the assessee. It is evident that the details were duly submitted before ld CIT(A). What stops ld CIT(A) from giving a finding himself instead of relying upon the report on the same by the AO which were duly objected by the assessee is not understood. Hence we deem it appropriate that the matter may be remanded to the file of the AO. Appeals by the assessee stand allowed for statistical purpose. Issues Involved:1. Tax Deducted at Source (TDS) on Interconnection Usage Charges (IUC) as Fees for Technical Services (FTS).2. TDS on discount extended to prepaid distributors under Section 194H.3. Recovery of tax under Section 201(1) when tax has already been paid by the payee.4. Interest under Section 201(1A) when tax has already been paid by the payee.Detailed Analysis:1. TDS on Interconnection Usage Charges (IUC) as Fees for Technical Services (FTS)The Revenue contended that the interconnection usage charges (IUC) should be treated as Fees for Technical Services (FTS) and therefore liable for TDS under Section 194J of the Income Tax Act, 1961. The Assessing Officer (AO) relied on the examination of a technical expert who confirmed that interconnectivity/roaming charges involved human intervention, thus qualifying as technical services.The CIT(A) disagreed, citing several judicial pronouncements, including those from High Courts and Tribunals, which held that no human intervention is required in the provision of roaming services. The services are standard and provided automatically by machines. The CIT(A) referenced cases such as CIT v/s. Vodafone South Ltd., Bharti Airtel vs ITO (TDS), and others, which concluded that such payments do not qualify as FTS and are not liable for TDS under Section 194J.The Tribunal upheld the CIT(A)’s decision, noting that the issue is covered in favor of the assessee by several precedents, and no contrary decision from the Jurisdictional High Court was presented. Thus, the Revenue's appeal on this issue was dismissed.2. TDS on Discount Extended to Prepaid Distributors under Section 194HThe assessee argued that the discount extended to prepaid distributors should not be treated as commission liable for TDS under Section 194H. They contended that the relationship between the assessee and the distributors is that of 'Principal to Principal,' and no commission is paid or credited to the distributors' accounts.The CIT(A) referenced the Karnataka High Court decision in Bharti Airtel Ltd vs DCIT, which emphasized examining the substance over form in agreements. The court noted that the distributor purchases the material and sells it independently, bearing liabilities such as sales tax and insurance. The court concluded that the relationship is 'Principal to Principal,' and the discount is not commission.However, the CIT(A) also noted that the assessee did not provide sufficient accounting records for verification, leading to the conclusion that the discount qualifies as commission under Section 194H, obligating TDS deduction.The Tribunal found the CIT(A)’s order unclear and self-contradictory. It noted that the CIT(A) had not examined the submissions himself but relied on the AO’s remand report. The Tribunal remanded the matter back to the AO for a detailed examination of the assessee’s submissions and directed the AO to decide as per law, granting the assessee an adequate opportunity to be heard.3. Recovery of Tax under Section 201(1) when Tax has already been Paid by the PayeeThe assessee contended that no tax could be recovered from them under Section 201(1) when the prepaid distributors had already paid the tax on the income arising from the transfer of prepaid talk time. They argued that recovering tax from them would result in double taxation, contrary to taxation principles. They also cited CBDT Circular No. 275/201/95-IP (B) and the Supreme Court judgment in Hindustan Coca Cola Beverage P. Ltd.The CIT(A) did not fully accept the assessee's arguments, leading to the Tribunal’s decision to remand the matter back to the AO for a thorough examination, considering the submissions and evidence provided by the assessee.4. Interest under Section 201(1A) when Tax has already been Paid by the PayeeThe assessee argued that interest under Section 201(1A) should not be charged when the tax has already been paid by the payee. They contended that any interest should be computed only from the date the tax was deductible to the date the payee paid the taxes.The Tribunal, in line with its decision on the previous issues, remanded this matter back to the AO for a detailed examination and directed the AO to decide as per law, ensuring the assessee is granted an adequate opportunity to present their case.ConclusionThe Tribunal dismissed all Revenue’s appeals and allowed the assessee’s appeals for statistical purposes, remanding the matters back to the AO for a detailed examination of the submissions and evidence provided by the assessee. The AO is directed to decide the issues as per law, ensuring the assessee is granted an adequate opportunity of being heard.