TaxTMI 
TaxTMI 
2014 (4) TMI 319
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.... operators in the country. Till 2012, it sought for issue of a lower tax deduction certificate, under Section 194-I of the Act, on its projected receipts and such lower deduction certificates were issued treating those receipts as rent. In F.Y. 2012-13, lower TDS certificate @ 3% in respect of the receivables under Section 194I was issued. Indus applied for issue of a lower deduction certificate @ 0.5% on 01.04.2013 for F.Y. 2013-14 on the projected receipts of Rs. 16,334.16 crores under Section 194C of the Act. Opportunity of hearing was granted to Indus by the Assessing Officer ("AO"). The Assessing Officer issued a deduction certificate under Section 197 on 22.05.2013 @ 2.5% for projected receipts covered under Section 194-I for F.Y. 2013-14 based on the average rates of tax to turnover for the last three years shown at 1.44%, pendency of assessment proceedings for A.Y. 2011-12 and penalty proceedings under Section 271(1)(C) for A.Y. 2010-11. Aggrieved by that certificate, Indus filed a writ petition (W.P.(C) No. 4518/2013) before this Court, which by its order dated 19.07.2013 directed the petitioner to prefer a Revision Petition before the CIT who was to dispose it of expediti....
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....ent (MSA) is beyond any doubt. Hence, such payments made to the assessee would be construed as 'rent' for the purposes of section 194-I." 6. The CIT rejected the submission based on the judgements of the Karnataka High Court and of this Court, reasoning as follows: "5.4.1 The assessee has placed reliance on the Hon'ble Karnataka High Court Judgment cited above. The issue agitated by the assessee before the Hon'ble Court was that their activity did not involve any sale or any transfer of right to use and, therefore, the same could not be subjected to VAT under KVAT Act, 2003. The assessee has also placed reliance on the Hon'ble Delhi High Court Judgment cited above. A careful reading of the decision of the Hon'ble Delhi High Court shows that the question of law for examination was whether the receipts were subject to levy of service tax by Union of India or levy of Value Added Tax by the Delhi Government. The decisions of the Hon'ble Karnataka High Court and the Hon'ble Delhi High Court cannot be applied in the facts and circumstances of this case and are clearly distinguishable. The observations of both the Courts as mentioned above have to be read in the context in which the....
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.... not given any right to use any demarcated space/place or the machinery of the cold storage (emphasis supplied) and thus does not become tenant. Therefore, the provision of 194/ is not applicable to the cooling charges paid by the customers of the cold storage". In the present case the right has been conferred on the mobile operator to install equipment required to provide telecom services by them to their customers. In other words, specified and fixed space, unlike cold storage units have been provided to the mobile operators for their equipment. 5.4.4. These units merely provide service for preserving the essential food items including perishable goods at various temperature suitable for specific food items for required periods. The customer brings its packages for preservation for a required period and takes away its packages after paying cooling charges. The customers do not use the building, plant/machinery in any manner and does not become a tenant of any kind, Therefore, in the said Circular, the provision of 1941 was said to be not applicable to the cooling charges paid by the customers of the cold storage. 5.4.5. The plea of the assessee that the mobile operators do ....
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....s 'rent' within the meaning of section 194-I. 5.6. In view of the above discussions, I hold that the receivables of the assessee are clearly liable for withholding tax under the provisions of section 1941 of the LT. Act. The rate of tax to be applied for issue of certificate: 6.1. The lower deduction certificate for F.Y. 2013-14 was issued @ 2.5% on receivables ~: covered u/s 194-I. The assessee has brought to notice that TDS of Rs. 256.7 crore has already been deducted from it up to 31.07.2013. Therefore, it has requested to issue revised certificate u/s 197(1) at Nil rate. It is seen from the records that the assessee has been able to furnish evidence only to the extent of Rs. 164.01 crore of tax deducted up to 30.06.2013 in Form No. 26AS. However, it also includes receivables covered under other sections of the Act (like 194, 194A, 194C, 194J etc.)..." 7. Indus argues that it is registered with Department of Telecommunications for providing passive telecom infrastructure services to telecom service providers. For the purpose of providing telecom network infrastructure services, it enters into standard service agreements titled Master Services Agreement ("MSA") with i....
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....s Court in W.P. No. 4976/2011. 9. Reliance is placed on Circular No. 1/2008 dated 10.01.2008 issued by Central Board of Direct Taxes in case of cold storage units. That circular clarified that payment for cold storage services are liable to withholding tax @ 2% under Section 194C of the Act. It was argued that the rationale applicable for cold storage services and telecom network infrastructure support services is identical since in both cases, customers are only interested in an appropriate temperature arid humidity levels. 10. Arguing that the activity and the transaction between Indus and its customers is not renting or dealing in property, learned senior counsel stated that the essence of the activity was the provision of highly skilled and technical services. These included the provision of creation and maintenance of highly controlled artificial temperatures, conducive to the functioning of the mobile service providers' signal transmission. The agreements, it was submitted, insisted upon this even as a prerequisite for the payment of monthly consideration or fee. In this respect, reliance was placed on the express terms of such agreements, which provided that if Indus f....
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....at the sharing operator shall not be deemed to be the tenant of Indus and no tenancy rights shall be deemed to exist over the site/passive infrastructure. Clause 2.1.8, presumably by way of abundant caution, states that it is expressly agreed by the sharing operator that nothing contained in the MSA or otherwise shall create any title, right, tenancy, or any similar right in favour of the sharing operator. 20. There are other provisions in the MSA which control the right of the sharing operator to gain access to the site and the passive infrastructure. For instance, Clause 3.1.2 states that the access shall be limited to the purpose of carrying out operation and maintenance activities and that too only to the authorised representatives or properly authorise sub-contractors of the sharing operator. Clause 1.8 of the Schedule 2 of the MSA has to be read along with the above clause. The tables set out in this schedule providing for payment of service credits by Indus to the sharing operators for failure to achieve the uptime service levels and those prescribing payment of service credits by Indus to the sharing operators for nonsubmission of the reports and providing for stiff pena....
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....Indus' equipment which they were allowed to use. Stressing that at no point of time do such mobile operators get any kind of uninhibited access or use, learned senior counsel relied on the several conditions in the MSA to say that it underlined at every stage and clarified beyond any doubt that neither the property nor the equipment was given on lease or a lease like agreement. Learned counsel also argued that reliance on Circular no. 1/2008 relating to cold storage units is misplaced. The said Circular clarified that "the main function of the Cold Storage is to preserve the perishable goods by means of a mechanical process, and storage of such goods is only incidental in nature. The customer is also not given any right to use any demarcated space/place or the machinery of the cold storage (emphasis supplied) and thus does not become tenant. Therefore, the provision of 194-I is not applicable to the cooling charges paid by the customers of the cold storage". 13. Learned counsel for the respondent, Mr. Kamal Sawhney, relied and emphasized on the expressions "any kind of"/"agreement...or arrangement" to say that the nature of the transaction need not fall within the traditionally ....
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....actor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoic....
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....d to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or (k) any firm; or (l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,- (A) does not fall under any of the preceding sub-clauses; and (B) is liable to audit of accounts under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor; (ii) "goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of Section 44AE; (iii) "contract" shall include sub-contract; (iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer ....
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....come, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." Analysis and Reasoning 16. Some of the relevant conditions in the MSA dated 07.03.2008 are discussed below. Clause 2 provides for "site access". Clause 2.1 provides for "provision of passive infrastructure" by Indus. This clause reads as under: - "2.1 Provision of Passive Infrastructure 2.1.1 Indus shall provide Site Access Availability to the Sharing Operator in accordance with the terms and conditions of this Agreement. 2.1.2 Throughout the Term of this Agreement, the Sharing Operator shall be entitled to provide notice to Indus of those Sites in relation to which it wishes to be granted Site Access Availability (a "Service Order"). The process for issuing a Service Order shall be as specified in Schedule 1 (Site Access Availability). XXXXXX XXXXXX XXXXX 2.1.4 In the event that the Service Orders received by Indus in respect of any Site(s) mean that the available Passive Infrastructure at such Site(s) are over-subscribed, an applicant whose Service Order was received by Indus prior to another Service Order s....
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....tor shall be provided access to the sites by providing ingress and aggress from such site by only the authorized representatives of the sharing operator or its properly authorized subcontractors. Clause 3.2 requires Indus to ensure that the operation and maintenance services which are provided by it to the sharing telecom operators are in accordance with "good industry practice" by suitably qualified, skilled and experienced personnel. Information about processes and proceedings to monitor the performance is to be shared with the sharing operators on a monthly basis. Consequences follow if operation and maintenance service levels fall short of the required standards. 18. Clause 4 outlines Indus' rights; clause 4.1 provides Indus the right to require that whenever any access to the site is needed by the sharing operator or its approved contractor, such access is supervised by it (Indus) or its nominees. Indus is also enabled with the right to use and grant access to any site including the infrastructure provided by it (including passive infrastructure) for provision of such services to any party or for such other purposes as Indus may in its discretion decided to support from tim....
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....ings/advertisement shall be removed. 19. Schedule 1 to the contract provides for "site access availability" and lists several technical details and requirements relating to the antenna, ground based tower, roof top tower, time lines for site deployment, site access service credit for acquisition and deployment etc. Schedule 2 provides for "operation and maintenance service". Clause 1.8 obliges Indus to ensure proper access to the sites for all authorized personnel of sharing telecom operator for the purposes set out in Clause 3.1.2. Clause 1.9.3 sets out the rates at which the petitioner has to pay the operation and maintenance service credits to the sharing operator for its failure to ensure the required uptime service levels. The Credits payable by Indus to the Sharing Operator for failure to achieve the above Uptime Service Levels are as set out below: Operation and Maintenance Service Level % of Total Rate Payable by Indus 99.95% or greater 0.0% 99.90% or greater but less than 99.95% 5.0% 99.70% or greater but less than 99.90% 7.5% 99.50% or greater but less than 99.70% 10.0% 99.00% or greater but less than 99.50% 25.0% Less than 99.00%....
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....rns on the operative intention of the parties" and that there is no single, simple litmus-test to distinguish one from the other. The "solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties." 22. In Krishna Oberoi (supra), the facts were that the assessee owned a hotel which provided to its customers various types of furnished rooms with certain other facilities for a consideration called "room charges". Room charges were composite in nature and it included charges for various services catered by the hotel. It was argued that consideration received by the hotel management could not be treated as rent within the meaning of Section 194-I. Indian Airlines Limited and Asian Paints India Limited were the assessee's regular customers. Indian Airlines had entered into an agreement with the assessee to utilise its hotel services for accommodating their cock-pit crew and Indian Airlines officials. As against the normal room tariff of Rs.2,000/- per day, the Indian Airlines crew were provided accommodation for a sum of Rs.825/-. The court repelled the assessee's contention that the transaction did not envision payment of re....
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....rts' endeavor should in all cases be to ascertain the parties' "operative intention" and the mandate of the law, which defines what is rent or amounts to letting out, etc. Section 194-I through the Explanation does enlarge the scope of what can be termed as traditional concept of letting or renting, by using the expression "other arrangement" aimed at permitting "use" of either immovable property (land and buildings) or other properties (plant, equipment, machinery, etc). The assessee's argument that in the previous decision of this Court the finding that there was no transfer of the right to use the premises concludes the issue entirely in its favour is not correct. The findings or reasoning of a court rendered in the context of one statute or enactment cannot be dispositive of a like intent in the other. It is well known that words do not have a fixed, invariable meaning; being "the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used." (Oliver Wendell Holmes). 24. In this case, the terms of the MSA Indus makes available: (1) Infrastructure and specialized services for use by mobile operators; (2) ....