Roaming charges not subject to TDS under section 194J/195 as they don't constitute technical services or royalty

ITAT Indore held that payment of roaming charges does not constitute Fees for Technical Services (FTS) or royalty under section 9(1)(vi), and therefore does not require TDS under section 194J/195. The assessee cannot be treated as assessee-in-default for non-deduction of tax at source on roaming charge payments. Following precedents from ITAT Delhi and ITAT Bangalore, the tribunal deleted the TDS demand and associated interest charges. The assessee's appeal was allowed.

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Issues Involved:
1. Non-deduction of TDS u/s 194H on amounts allowed to distributors/dealers of pre-paid vouchers.
2. Non-deduction of TDS u/s 194J on roaming charges paid to Other Telecom Operators (OTOs).
3. Levy of interest u/s 201(1A) for alleged non-deduction of tax u/s 194H and 194J.

Summary:

Issue 1: Non-deduction of TDS u/s 194H on amounts allowed to distributors/dealers of pre-paid vouchers.

The assessee-company, engaged in providing telecom services, was treated as a defaulter for non-deduction of TDS u/s 194H on amounts allowed to distributors/dealers of pre-paid vouchers for the Financial Year 2009-10. The AO created a demand for TDS plus interest. The CIT (TDS), Bhopal, termed the AO's order as erroneous and prejudicial to the interest of revenue and directed the AO to re-examine the applicability of TDS u/s 194J on roaming charges paid to OTOs. The assessee appealed against the revision order dated 27.03.2014 passed by CIT (TDS), Bhopal u/s 263.

Issue 2: Non-deduction of TDS u/s 194J on roaming charges paid to OTOs.

The AO, following the revision order, created a demand for TDS u/s 194H on amounts allowed to distributors/dealers of pre-paid vouchers and u/s 194J on roaming charges paid to OTOs. The CIT(A) upheld this order. The ITAT, Indore, initially adjudicated the appeal but missed addressing grounds related to TDS u/s 194J on roaming charges. Upon a Misc. Application by the assessee, the ITAT recalled the order for fresh hearing on these grounds.

The ITAT considered multiple precedents, including decisions by the Hon'ble Delhi High Court, Hon'ble Karnataka High Court, and ITAT Bangalore, which held that roaming charges do not constitute "fees for technical services" (FTS) u/s 194J as they do not involve human intervention. It was concluded that the payment of roaming charges is neither FTS nor "royalty" and thus does not attract TDS u/s 194J. Consequently, the assessee cannot be held as 'assessee-in-default' for non-deduction of tax at source on roaming charges.

Issue 3: Levy of interest u/s 201(1A) for alleged non-deduction of tax u/s 194H and 194J.

The interest levied u/s 201(1A) is consequential to the levy of TDS. Since the demand for TDS on roaming charges was deleted, the interest levied by the AO also comes to an end. Therefore, this ground became infructuous and did not require separate adjudication.

Conclusion:

The ITAT allowed the assessee's appeal (ITA No. 265/Ind/2018) regarding non-deduction of TDS u/s 194J on roaming charges and dismissed the appeal (ITA No. 415/Ind/2014) as infructuous. The order pronounced on 23.04.2024 concluded that the assessee was not liable for TDS u/s 194J on roaming charges paid to OTOs and thus not an 'assessee-in-default'.

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