TaxTMI 
TaxTMI 
2010 (12) TMI 842
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.... took the view that payment of national roaming costs made to other cellular service providers for allowing use of their network would amount to payment made for technical services within the meaning of section 194J and the assessee ought to have deducted tax from such payments. In the alternative, the Assessing Officer held that the payment should be treated as being in the nature of hiring of plant and machinery and, therefore, section 194-I would apply, under which any payment of rent for the use of land, building, plant and machinery or equipment or furniture was subject to deduction of tax at source. In this view of the matter, he passed orders under section 201 of the Income Tax Act, 1961, for all the three years on 19th February 2009, holding the assessee to be in default in not deducting the tax, which amounted to the following:- Financial Year 2006-07 (Assessment Year: 2007-08) Rs. 12,23,66,850/- Financial Year 2007-08 (Assessment Year: 2008-09) Rs. 15,32,34,470/- Financial Year 2008-09 (up to December 2008) (Assessment Year: 2009-10) Rs. 12,85,63,030/- The total amount of tax deducted at source amounted to Rs. 40,41,64,350/-. Towards the end of the or....
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....f the Income Tax Act, 1961 (hereinafter referred to as the 'Act'), by treating the Appellant to be an 'assessee in default' alleging the following: a) Lower deduction of tax at source on payments made to agencies/contractors for supply of manpower under Section 194C of the Act, instead of Section 194J of the Act; b) Lower deduction of tax at source on payments made towards outsourced call centre services under Section 194C of the Act, instead of Section 194J of the Act; and c) Non-deduction of tax at source on payments made to telecom service providers towards national roaming charges under Section 194J or 194-I of the Act." 4. So far as the section 194-I is concerned, the assessee took up the contention before the CIT(A) that the national roaming facility is a standard facility which cannot be termed as rent for the use of any plant and machinery as defined in Appendix-I to the Income Tax Rules, 1962. This contention did not find favour with the CIT(A), who held as follows:- (a) The word "rent" has been given a wide meaning in section 194-I and, therefore, includes any payment by whatever name called. Thus though the payment i....
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....3.07.2006: "Explanation:- For the purposes of this section,- (i) "rent" means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;" B. Definition of "rent" after the amendment by the aforesaid Act: "Explanation:- For the purposes of this section,- (i) "rent" means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;". A careful perusal of the definition of the word "rent" shows several features. Firstly, any payment which in substance i....
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.... by whatever name called under any lease, sub-lease or tenancy or "any other agreement or arrangement for the use of....." the assets mentioned therein. We think that the emphasis of the provision is upon the "use" of the asset and so long as this condition is satisfied, any agreement or arrangement, whether it is similar or not in nature to a lease, sub-lease or tenancy is taken in by the Explanation (i). It seems to us that a transfer of interest in the property is not required to be shown before the payment is subjected to tax deducted at source. The applicability of the rule of ejusdem generis is subject to the language employed by the statute. Where the intention manifested by the language of the statute is clear, the rule has no application. It appears to us to be the intention of the statute that so long as any of the assets mentioned in clause (a) of Explanation (i) is used by the payer of the amount, whatever be the arrangement or agreement between him and the payee, the consideration for the use is to be treated as "rent" and tax has to be deducted from the same. In CGT vs. Getti Chettiar (1971) 82 ITR 599 (SC) cited on behalf of the assessee the question arose as to whet....
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.... the property. A common example is that of an agreement for leave and licence where the licencee does not enjoy any interest in the property except that he is permitted to use the property in consideration for which he pays licence fees. Since use of the property, albeit without transfer of any interest therein, is involved in such an arrangement, the payment, though called licence fee, is deemed to be rent. There may thus be cases which involve transfer of an interest in the property and cases which do not involve a transfer of interest in the property. In both cases, the payment made, if it is for the use of the property, is to be treated as rent and tax has to be deducted therefrom. Thus, in our humble opinion, the words "any other agreement or arrangement" have been advisedly employed to include transactions involving use of the property without involving any transfer of interest therein, as in the cases of lease, sub-lease or tenancy. That is why we observed that the emphasis of Explanation (i) is on the "use" of the property, rather than on the question whether there is a transfer or not of any interest in the property. In this view of the matter, we are of the opinion that i....
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....y "use" of the equipment owned by IDEA or Airtel or any other service provider with whom the assessee has an agreement or arrangement in respect of granting roaming facility to its subscriber, and if so, by whom. We take up for consideration the "National GSM Roaming Agreement" entered into between IDEA Cellular Limited and Aditya Birla Telecom Limited on the one hand, both of which are collectively referred to as "IDEA" and Vodafone Essar Limited, the assessee herein on the other. The agreement is dated 12th May 2008 and a copy thereof is placed at pages 81 to 114 of the assessee's Paper Book filed on 18th February 2010. The general terms and conditions for GSM National Roaming consist of 21 clauses running into 19 pages (pages 86 to 114). The introduction to the agreement (clause 2) says that the agreement provides for the establishment of national roaming services whereby a subscriber provided with services in one cellular circle by one of the network operators can also gain access to the services of any other network operators in their respective licensed area. Some of the important definitions may be noticed first. Clause 3.2 defines "Roaming Subscriber" to mean a person o....
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.... choice of manual network selection or automatic network selection. > Under automatic network selection, the services of the most preferred roaming partner of subscriber's home network will be selected. > Under the manual selection, the subscriber can choose the roaming partner whose services he would like to use out of the ones which are available in that area (subscriber can only choose the roaming partner with whom Vodafone has tie up). > Visiting network (eg. IDEA) locates mobile device and identifies that it is not registered with its system i.e. VLR. > Visiting network contacts home network of Vodafone subscriber i.e. HLR and requests service information about roaming device using IMSI number - IMSI number is a unique subscriber identity number granted to the customer at the time of subscription. > Visiting network maintains temporary subscriber record for said mobile device and provides an internal temporary phone number to the mobile device. > Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. > The entire proc....
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....erson who brings the wheat cannot be said to be the person who used the chakki. What he paid to the owner of the chakki was for the service of grinding the wheat into atta. These may be common place examples but they do not put the point less effectively for that reason. The subscriber of the assessee who is entitled to use the roaming service merely obtains a service from the other service provider; say IDEA or Airtel, with whom the assessee has a GSM Roaming Agreement. He has neither seen the equipment nor has any direct contact with the same. All that he knows is that because he has the roaming facility in his cell phone, he can make a call from Delhi to any other place even though he is registered with the assessee only in Mumbai. He is the person who is entitled to the roaming service which is provided by the other service provider with whom the assessee has a working arrangement and for that reason he cannot be said to use the equipment involved in providing the roaming facility. Even if we assume for the sake of argument that the subscriber is the person who makes use of the equipment, the liability to deduct tax would be on him and not on the assessee. 11. The real quest....
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....obile telephone services including provision of access to and use of switched or non-switched networks for the transmission of voice, data and video, inbound and outbound roaming service to and from national and international destinations". The provisions of section 65 of the Finance Act, 1994, referred to above show that the Legislature itself has looked upon the provision of cellular telephony as a service and this includes inbound and outbound roaming service both to and from national and international destinations. This explains why Service Tax was charged by Airtel in the invoice raised on the assessee. It is also fortified by the terms of the agreement dated 27th November 1994 entered into between the Government of India (Ministry of Telecommunications) and the assessee, who at the relevant time was known as Hutchison Max Telecom. A copy of the agreement was filed on behalf of the assessee and our attention was drawn to certain terms therein which show that cellular mobile telephony was always looked upon as a service and not as use of any equipment. Clause 1 of the agreement describes the licence as one to establish, maintain and operate "Cellular Mobile Telephone Service". ....
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....y the CBDT in Circular No.715 dated 8th August 1995 (pages 50 to 55 of the Department's Paper Book) is also revealing. The clarifications are in the form of Questions and Answers. Question No.20 is whether payments made to a hotel for rooms hired during the year would be of the nature of rent, so that there is a liability to deduct tax under section 194-I. The answer was that payments made by persons, other than individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under the section. A clarification was later issued on 30th July 2002 by way of Circular No.5/2002. The need for clarification arose because certain doubts were expressed as to what would constitute "hotel accommodation taken on regular basis". The Circular went on to explain that where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on 'regular basis'. It was further clarified that where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement, the position would be the same. It wa....
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....arges cannot be considered to be rent. 14. We may now refer to a few authorities cited by both the sides. From the assessee's side reference was made to the decision of the AAR in Dell International Services India (P) Ltd., In Re (2008) 305 ITR 37. This decision seems to suggest that the user of any equipment should have some right over the equipment and further that there should be some dedicated machinery or equipment instead of a common infrastructure which can be used by various operators to provide services. It was also observed that there should be a right to exclusive possession or custody of the equipment and enjoyment thereof over a stipulated period of time in order that a payment can be said to be rent. But the more important observation in this order is as to the meaning and import of the word "use". It was held that the word "use" in relation to any equipment is not to be understood in the broad sense of availing of the benefit of an equipment, but it indicated that there must be some positive act of utilization, application or employment of the equipment for the desired purpose. It was held that if an advantage was taken from sophisticated equipment installed a....
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.... in section 194-I even if the rule of ejusdem generis is considered rightly applicable. 15. The learned CIT Departmental Representative had however drawn our attention to the judgment of the Andhra Pradesh High Court in Krishna Oberoi vs. Union of India (2002) 123 Taxman 709 (AP) in an attempt to show that the word "rent" has been defined in the Explanation below section 194-I in a wide sense to include not only consideration paid under a lease or sub-lease or tenancy but also the consideration paid under "any other agreement or arrangement" for the use of any of the assets mentioned therein. A careful perusal of paragraph 9 of the judgment shows that however wide may be the construction placed on the Explanation, the payment in question under the agreement or arrangement with the customers should be for the "use" of the equipment. The judgment is not an authority for the proposition as to what constitutes "use" of the equipment. In that case it was an admitted position that the customer of the hotel used or occupied the room and the argument put forward before the High Court was that the customer was not a lessee or tenant but a mere licensee and, therefore, the payment to the ....
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....of CIT vs. Kotak Mahindra Finance Ltd. [(2010) 191 Taxman 280 (Bom) = (2009) 317 ITR 236 (Bom)]. That was a decision which arose under section 32 of the Income Tax Act, which provided for depreciation allowance. The question was whether an asset given on lease by an assessee engaged in the business of leasing, before the end of the accounting period, can be said to have "used" the equipment for the purpose of his business and whether it is necessary to examine the further question as to whether the lessee also had put the asset taken on lease to use within the said period. It was held that it was not necessary that the lessee also should have put the leased equipment to use before the end of the accounting period and it was sufficient for the purpose of section 32 that the lessor had leased out the asset to the lessee within the accounting period so that he can be said to have used the asset for the purpose of his business, which was that of leasing. This decision seems to us to be not relevant for the controversy before us. The point for consideration before the Hon'ble High Court was not whether there was any use of the leased equipment for business purposes, the question bei....
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.... what is the technology involved which enables him to use the facility or service. To say, in such circumstances, that he is using the equipment would be a travesty of reality. Our attention was then drawn to the National GSM Roaming Agreement where definition clause 3.7 defines a VPLMN Operator to mean a party who allows roaming subscribers to use (underlining ours) its GSM network. When we look at this definition closely, we find that the VPLMN Operator in question in the present case will be IDEA or Airtel and it is either IDEA or Airtel which allows the roaming subscriber to use its GSM network, which means that the GSM network of IDEA or Airtel is being used by the roaming subscriber and not the assessee. Therefore, this definition is not of much use to the revenue in the present case because reliance cannot be placed on the same to contend that it is the assessee which uses the GSM network of the VPLMN Operator. 18. We may now refer to the judgment of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. and Another vs. Union of India and Others (2006) 282 ITR 273 (SC) cited by Mr Dastur. This judgment arose under the Service Tax and Sales Tax. One of the questions wh....
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....road or bridge into the possession of the toll payer by lifting a toll gate. All these observations may have been made in the context of the question whether the electromagnetic waves were goods or not but one of the important strands underlining the reasoning of the Court was that the subscriber to the mobile telephone does not intend to use any portion of the equipment that is used in providing the service. Another basic observation that was made by the Court in the context of the question as to whether providing mobile telephoning to the subscriber was a service was based on the Service Tax provisions introduced by Chapter V of the Finance Act, 1994. One of the provisions stipulated that a person to whom any service of a telephone connection has been provided by a telegraph authority would be a subscriber and a service to a subscriber by the telephone authority was defined to be a taxable service. After noticing these provisions the Supreme Court at page 308 held that a telephone service is nothing but a service. 19. The argument of the Department was that the aforesaid judgment of the Supreme Court was not relevant in all contexts. If the underlying position is that a mobile....
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....that the payment can be called rent. Even the National GSM Roaming Agreement between the assessee and IDEA does not provide for any transfer of control of the equipment involved in the roaming facility to the assessee. In fact the definition of a "Roaming Subscriber" in clause 3.2 of the agreement says that it shall mean a person or entity with valid subscription for national use issued by one of the parties and using a GSM Subscriber Identity Module (SIM) and who seeks GSM service in a geographic area outside the area served by his HPLMN Operator. The agreement between the parties is merely to the effect that if the assessee's subscriber wants a roaming facility when he is outside the geographical area served by the assessee, he can enjoy such facility because of the agreement or arrangement entered into between the assessee and the other service provider (IDEA). There is no term in the roaming agreement which shows that the effective control or possession of the network of IDEA would be transferred to the assessee during the period for which the subscribers of the assessee may use the roaming facility. 21. Two other decisions cited on behalf of the assessee are the decisio....
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.... is only a facility offered by the nonresident company out of the satellite infrastructure it possessed. If these observations are applied to the facts of the present case, it may be seen that the network or equipment owned by IDEA is merely accessed by the assessee's subscriber by the press of a button in the mobile handset which is owned by the subscriber. It cannot be likened to a remote control device by which a TV is operated because the network or the equipment is not owned or possessed by the subscriber nor by the assessee. As observed by the AAR, with which we respectfully agree, it amounts to the provision of the roaming facility through the network or equipment owned by IDEA and operated and controlled by it, of course after proper verification of the network of the assessee for the purpose of finding out whether the subscriber demanding the roaming facility is registered with the assessee. 22. The decision of the AAR in Cable and Wireless Networks India P. Ltd., In re (supra) does not require separate consideration as the reasoning and the conclusion is the same as in the case of Isro Satellite Centre (ISAC), In re (supra) and Dell International Service (P) Ltd. (....
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....d No.1(c) raised by the assessee before the CIT(A) has been considered by him in paragraphs 9 and 10 of his order. The assessee's contentions with regard to section 194J are noted in paragraphs 9.4 to 9.7. The contentions with regard to section 194-I are noted in paragraphs 9.8 to 9.13 of the order. The conclusion of the CIT(A) is in paragraph 10, which covers about 31/2 pages (from page 22 to page 25 of his order). However, the discussion in paragraph 10 is confined to the assessee's contentions under section 194-I, namely, whether the payment of national roaming charges can be regarded as rent. There is no discussion with regard to the assessee's contentions vis-à-vis section 194J. Ultimately the operative portion of his decision at the end of page 25 of his order says that "so far as 1(c) is concerned the same is decided against the appellant". 26. Now there are different ways of looking at the decision of the CIT(A). One way is to go merely by the operative portion of his order and hold that both with regard to section 194-I and section 194J, the matter has been decided against the assessee. The other way in which it can be understood is to take the view t....
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....ding the applicability of section 194J to the payment of national roaming charges. We would prefer to understand the decision of the CIT(A) as not giving a finding with regard to the assessee's claim that section 194J is also not attracted. In fact there is no discussion of the assessee's contentions vis-à-vis section 194J and ultimately the Ground No.1(c) taken before the CIT(A), which refers to both section 194J and section 194-I, has been dismissed. Taking all these into consideration, it would appear to us that the better course would be to hold that the issue regarding section 194J, though it is stated by the CIT(A) to have been decided against the assessee, it has been done so without applying his mind to the contentions put forth by the assessee questioning the applicability of that section. It may be an inadvertence on the part of the CIT(A). 27. While the contention of the assessee is that there was no rendering of any technical services by the other service providers and thus section 194J was not attracted and what was rendered was merely a service (but not technical service) or a facility, the contention of the revenue was that the payment was for techn....
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.... directions to all its officers, that in such cases, the Department need not proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with the technological advancement matters such as present one will keep on recurring and hence time has come when Department should examine technical experts so that the matters could be disposed of expeditiously and further it would enable the Appellate Forums, including this Court, to decide legal issues based on the factual foundation. We do not know the constraints of the Department but time has come when the Department should understand that when the case involves revenue running into crores, technical evidence would help the Tribunals and Courts to decide matters expeditiously based on factual foundation. The learned Attorney General, who is present in Court, has assured us that our directions to CBDT would be carried out at the earliest". In fairness to both the sides we must however admit that we requested them to argue the question of applicability of section 194J also, which they have done with great ability and assiduity if we may say so with respect. At that time we h....
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.... already been paid by the payees either by way of advance tax or by way of self-assessment tax at the time of filing the return of income. It is pointed out in the ground that the action of the Assessing Officer amounts to recovering the tax twice in relation to the same income. It is also pointed out in the ground that the CIT(A) erred in ignoring the declarations from various vendors/telecom operators stating that income tax was paid by them, on the ground that the declarations were not verified by the Assessing Officer. It is stated that they were also filed before the Assessing Officer. 30. Our attention was drawn to pages 115 to 124 of the assessee's Paper Book, which contain the confirmation letters written by eight service providers to the assessee stating that the national roaming charges for providing roaming connectivity services during the financial years 2006-07, 2007-08 and 2008-09 have been considered by them in the calculation of their taxable income and has been appropriately included in their tax returns. The Permanent Account Numbers were also given by the payees in their letters as well as the place and office where they were assessed. At page 123 is a let....
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....erified the details submitted by the assessee from the respective officers assessing the payee companies and presented the factual position before the Tribunal for which sufficient time was available to him even after the Tribunal granted the stay. Strong reliance was placed on the judgment of the Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. (supra). Other decisions which were relied upon were the following:- (1) Nathu Ram Premchand vs. CIT (1963) 49 ITR 561 (All) (2) CIT vs. Ponnuswamy Naidu (1995) 214 ITR 185 (Mad) (3) CIT vs. S.P. Bhatt (1974) 97 ITR 440 (Guj) 33. The argument of the Department is that the issue was raised only before the CIT(A) and not before the Assessing Officer and the onus was on the assessee and not the Assessing Officer to verify the payments. It was further contended that the self-declarations by the payees to the effect that they had paid the taxes cannot be relied upon and the final position in the payees' hands has to be seen. It was further submitted that out of the total of the nineteen parties in respect of whom Permanent Account Numbers were filed before the CIT (TDS) in April 2009, only eigh....