2025 (2) TMI 1467 - AT - Income Tax

Payments for VoIP minutes not treated as fees for technical services, relieving payer from TDS and disallowance.

Whether payments for purchase of VoIP minutes constituted fees for technical services and attracted tax withholding and disallowance was decided by ... Disallowance u/s 40(a)(ia) - TDS u/s 195 - treating purchase of minutes from foreign party as a technical service by merely relying on Union Carrier Services Agreement - human intervention V/S automated software - whether the amount paid by the assessee to NSPL toward purchase of VoIP minutes is to be treated as FTS and accordingly tax deductible under the Act? HELD THAT:- NSPL buys and sells the VoIP network among various international customers including the assessee. The billing for using VoIP network is done for the bandwidth and the usage i.e. VoIP minutes. This is similar to the billing of traditional phone lines where the customer is billed for the minutes spoken during a particular call. VoIP is a fully automatic process with no human intervention i.e. the conversion of voice in to digital data, transmitting data packets through optimum routing, and reconverting into voice at the receiving end etc. The role of NSPL and for that matter even that of the assessee is to ensure that the customer who has bought the dedicated VoIP network is provided with the same. NSPL is not involved in the technology of VoIP but acts as an intermediary to obtain the network services and sell the same to the customers. Therefore it cannot be said that NSPL is providing any technical services to the assessee by procuring and selling the VoIP network. Considering unique nature of business of providing VoIP network to the customers, we are of the view that NSPL cannot be said to be providing any technical service to the assessee and therefore the payment made by the assessee cannot be treated as FTS. Further NSPL does not have a PE in India and that no technical services are made available to the assessee. Accordingly we hold that the payments made by the assessee to NSPL towards VoIP are not taxable in the hands of NSPL in India and therefore the assessee is not liable to deduct any tax on such payments u/s 40(a)(ia) - Decided in favour of assessee. Issues: Whether payments made by the assessee to Novanet Singapore Pte. Ltd. for purchase of VoIP minutes constitute fee for technical services taxable in India and attract an obligation to deduct tax at source resulting in disallowance under section 40(a)(ia) of the Income-tax Act, 1961.Analysis: The payments were for procurement and resale of dedicated VoIP network capacity billed as usage (VoIP minutes). The record shows VoIP operation is an automated process of digitising, packetising, routing and reconversion of voice without human intervention, and Novanet acted as intermediary procuring and consolidating network services from international carriers rather than supplying technical expertise or making technical personnel available in India. Authorities relied upon by the assessee establish that services carried out by fully automated software or without human intervention do not qualify as technical services for the purpose of section 9(1)(vii). The Tribunal examined the Unilateral Carrier Services Agreement and the commercial nature of billing and found no material to treat Novanet's receipts as fees for technical services or to conclude existence of a permanent establishment in India. On that basis, the tax-withholding obligation and the consequential disallowance under section 40(a)(ia) were not supportable.Conclusion: Payments to Novanet Singapore Pte. Ltd. for purchase of VoIP minutes are not fee for technical services taxable in India; no tax deduction at source was required and the disallowance under section 40(a)(ia) is deleted, favouring the assessee.