TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 366
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....f the Ld. CIT (A) that the payment made towards networking charges for provision of bandwidth/ interconnect facility was fee for technical service and that the assessee was liable to deduct tax u/s 194J of the Act. 2. The facts, in brief, are that the assessee is engaged in the business of providing integrated network solutions, which include internet service. The case of the assessee is that it holds Internet Service Provider - category A - licence from the Department of Telecom (DOT). Since the assessee did not possess international gateway (requisite license) for providing network connectivity to its customers, it made arrangements with Authorised International Gateway Providers (AIGP) such as MTNL, BSNL and Tata Communication Ltd. and having acquired the requisite bandwidth from the AIGPs, the assessee utilised the same to provide connectivity services to its clients. During the year under consideration, an aggregate payment of Rs. 2,04,59,892/- was made by the assessee which comprised of recurring charges of Rs. 1,82,85,051/- and networking charges of Rs. 21,74,841/-. Networking charges included network expenses of Rs. 11,40,863/-. Out of total payment of Rs. 2,04,59,892/-, t....
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.... holding that the payment made towards networking charges for provision of bandwidth or interconnect facility was fee for technical service and that the assessee was liable to deduct tax under section 194J." 4.1 As the fate of this CO before us will be crucial in deciding the fate of the Department's appeal, we are proceeding to adjudicate on the CO first. 4.2 The Ld. AR submitted that the assessee is engaged in the business of providing integrated network solutions. The business of the assessee inter alia include following activities: Design internet/enterprise network Plan IT infrastructure, hardware software and networking equipment, messaging solutions, firewall and networking equipments. Supply, implement and maintain equipment and connectivity. Liaison with government agencies and service providers for WPC, SAFCA and any other type of clearances to provide integrated and fault free services. Internet service provider. 4.3 The Ld. AR submitted that "Bandwidth" is a term used in the field of 'electronic communication'. It is the width of the range (or band) of frequencies that an electronic signal uses on a transmission medium. Bandwidth is the amount of data that....
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.... of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 4.5 The Ld. AR further submitted that in the definition, the word "technical" comes in between the words "managerial and consultancy services". Therefore, the meaning of the term "fee for technical services" is required to be understood by applying the rule of noscitur a sociis. It was submitted that "technical service'" contemplates rendering of a "service" to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been paid for technical services. The mechanism of providing bandwidth is nothing but giving connection through optical fibre/copper wires to internet users. MTNL, BSNL and TATA Communication Ltd do not render any service of managerial, technical or consultancy nature. Merely use of Internet access facility of a bandwidth cannot attract the applicability of section 9(1)(vii) of the Act. 4.6 The Ld. AR submitted that Hon'ble Delh....
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....ding access to bandwidth BSNL, MTNL & TATA Communication Ltd are not carrying any profession. The Ld. AR also submitted that in subsequent years, the Department has already accepted that the liability to deduct tax at source was u/s 194C of the Act. He submitted that the assessee's CO deserves to be allowed. 5. The Ld. DR relied on the orders of the authorities below and submitted that since some kind of human intervention could not be ruled out completely, the payment attracted provisions of section 194J. 6. We have heard the rival submissions and have perused the records. It is seen that under the provisions of section 194J of the Act, where the assessee makes any payment against fees for technical services, the assessee is liable to deduct tax at source at the specified rates at the time of credit of the payment or at the time of actual payment, whichever is earlier. Fee for technical services is defined under the Act as consideration paid for rendering any managerial, technical or consultancy services but does not include consideration paid for any construction, assembly, mining or like project undertaken by the recipient. Further, the consideration which in turn, would becom....
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....ected. Software developed by companies in India is exported either in physical mode (i.e. through floppy disks) or through wireless communication using satellite links. When an Indian company exports software to companies outside India using satellite communication facilities, the digital signals are converted into analog signals through earth stations and are transmitted to one of the geo-stationery satellites using the required bandwidth provided by Videsh Sanchar Nigam Ltd. or Software Technology Parks of India. The signals that have been beamed to the satellite will be downlinked to the earth station in the US and sent to the client locations using the bandwidth and down linking facility provided by international service providers such as AT & T, MCI Telecommunications etc. The assessee shares the bandwidth provided by the international service providers. Bandwidth in normal parlance refers to the amount of traffic that could be carried on the internet. Greater the bandwidth greater would be the ability to transmit data and other communication. The payments made to service providers such as AT & T or MCI Telecommunications are for the use of bandwidth provided for down linking ....
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....vices were rendered by the US company to the assessee and, therefore, provisions of section 9(1)(vii) did not apply so as to warrant any deduction of tax from payment made by the assessee to the US company. In this case, the assessee was providing internet access of a certain bandwidth to its subscribers. The main server on the basis of which the internet services were provided was located in the USA. For the services rendered by the assessee to the subscribers in India, it levied a charge and out of this, some amount was paid to the US party i.e. Teleglobe. As per the Assessing Officer, the assessee was liable to deduct tax at source from payments made to Teleglobe. The Assessing Officer invoked the provisions of section 9(1)(i) and 9(1)(vii). The ITAT considered the agreement that had been entered into by the assessee with Teleglobe and concluded that there was no privity of contract between the customers of the assessee and Teleglobe and that the assessee was merely paying for an internet bandwidth to a US company and then selling it to its customers. The ITAT concluded that the use of internet facility may require sophisticated equipment but that did not mean that technical ser....