TaxTMI 
TaxTMI 
2016 (6) TMI 174
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....sessee to deduct tax at source under section 194J of the Act, in respect of payments made towards roaming service provided by other telecom service providers. Facts being common in all the assessment years, therefore, as a matter of convenience, we refer to the facts as involved in assessment year 2009-10. 3. Brief facts are, a survey under section 133A of the Act was conducted in assessee's case on 3rd August 2011, to verify TDS compliance. On the basis of information obtained as a result of survey, the Assessing Officer issued notice under section 201(1), calling upon the assessee to produce various details including details pertaining to pre-paid / post paid commission and roaming charges. As stated by the Assessing Officer, in response to the show cause notice, the assessee furnished details as called for. After verifying the details submitted by the assessee, the Assessing Officer noticed that the assessee has obtained license to provide Basic + Cellular Telecommunication Services. He found the assessee holds two Unified Access Service licenses for Mumbai service area and another for Maharashtra and Goa service areas. The Assessing Officer noticed that the Department of Tel....
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....As per the agreement, distributors / retailers are not permitted to sell the product to the ultimate consumers beyond the MRP. The assessee is delivering these products to the distributors for a specified margin. For e.g., if MRP of the product is Rs. 100, the assessee delivers the same to its distributor at Rs. 80, which is the invoice price of the company and the assessee collects this invoice price in advance from the distributors. However, the distributors are permitted to deliver the products to the ultimate consumers at a price of their choice not exceeding the MRP of Rs. 100 per unit. Thus, the margin of the distributors is the difference between the sale price and invoice price. The Assessing Officer found that the difference in invoice price and sale price is treated as a discount in assessee's books of account, however, no TDS was made by the assessee on such amount. From the aforesaid facts, the Assessing Officer was of the view that the distributors were performing the same service with regard to pre-paid as it is performing in case of post-paid. Therefore, there is no basis for differentiating between post-paid and pre-paid sim cards as far as applicability of TDS prov....
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.... which is in packed form requires to carry the MRP price over the product. Therefore, the assessee sells its product allowing trade margin on the transaction at the point of sale of such product to the distributor and has no control over the price at which the distributor further sells the product subject to condition such price does not exceed the MRP. The assessee also made further submissions supported by documentary evidence to demonstrate that transaction between the assessee and the distributor as far as pre-paid sim cards and recharge vouchers are concerned is a purchase and sale transaction simplicitor. On the basis of submissions made, it was stated by the assessee that provisions of section 194H are not applicable in respect of transaction between the assessee and the distributor relating to pre-paid sim cards and re-charge vouchers. The assessee submitted, it neither pays any income nor is responsible for paying to the distributor any amount either in the form of commission or otherwise for sale of the products. It was submitted, assessee is even not aware of the price at which the sim cards and recharge vouchers were sold by the distributors to retailers and the retaile....
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....lant for not deducting tax on said discount and thus attracting interest on the same which is included in total interest levied under section 201(1)/201(1A) of Rs. 9,50,36,449 for A.Y. 2009-10, Rs. 5,95,44,354 for A.Y. 10-11, Rs. 9,43,72,450 for A.Y. 11-12 and Rs. 2,83,31,306 for A.Y. 12-13 are confirmed. The ground no.1 to 8 in A.Y. 2009-10 and ground no.1 to 9 in A.Y. 2010-11, 11-12 and 12-13 are dismissed." 5. Learned Authorised Representative submitted, the decision of the Tribunal, Bangalore Bench, relying upon which the learned Commissioner (Appeals) has upheld the order of the Assessing Officer, in the meanwhile, has been reversed by the Hon'ble Karnataka High Court holding that provisions of section 194H are not attracted to the discount allowed by the assessee to the distributors on MRP of pre-paid sim cards. Referring to the judgment of the Hon'ble Karnataka High Court in Bharti Airtel Ltd. & Ors v/s DCIT, in ITAs no.637 & 644 of 2013, dated 14th August 2014, wherein the assessee was also a party in ITA no.158 of 2013, the learned Authorised Representative submitted under identical facts and circumstances, the Hon'ble Karnataka High Court held that there is....
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....ore, as per the terms and conditions, once the sim card / starter kits are sold to the distributor, the sale is complete and under no circumstances, they can be returned back to the assessee. From the aforesaid facts, it is clearly evident that as far as sale of starter kit / sim card is concerned, it is purely a purchase / sale transaction on principal-to-principal basis and there is no relationship of agency. That being the case, the provisions of section 194H are not applicable. The Hon'ble Karnataka High Court after examining in detail the aforesaid factors have decided the issue in favour of the assessee by reversing the order of the Tribunal. In view of the changed scenario, after the order of the Hon'ble Karnataka High Court as referred to above, the decision of the learned Commissioner (Appeals) cannot be sustained. In fact, ITAT, Jaipur Bench, in case of M/s. Tata Teleservices Ltd. v/s ITO, ITA no.309/Jp./2012 and others, dated 13th March 2015, following the decision of Hon'ble Karnataka High Court (supra), held that provisions of section 194H is not attracted on the discount given on sale of pre-paid starter kit and accordingly, following the decisions referred to....
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....he Assessing Officer, therefore, called upon the assessee to justify its action in not deducting the tax at source. In response to the query raised by the Assessing Officer, the assessee in its letter dated 8th November 2011 submitted, the provisions to section 194J are not applicable on the payment made to other operators for the inter-connection usage charges as it is in the nature of standard service provided through technology without any human involvement or intervention. It was submitted, transferring the calls generated from one network to the subscriber of another network does not involve any manual labour. Rather, it is a highly technical activity done through machines. It was submitted, the Hon'ble Supreme Court in Bharti Cellular Ltd., has dismissed the department's appeal with a direction to the Departmental Authorities to seek expert technical opinion in the matter and allow further cross-examination of the expert. Thus, it was submitted by the assessee that without obtaining report from the technical expert and cross-verification by the assessee, it cannot be held that the services rendered are technical service with human intervention. The Assessing Officer after....
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....es Ltd.,, has held that inter-connectivity / roaming charges paid to other telecom network for roaming services provided do not require any human intervention and accordingly payment for roaming charges cannot be treated as fees for technical services so as to attract provisions of section 194J of the Act. He, therefore, submitted that the issue having been decided by the Tribunal, in favour of assessee, the orders passed by learned Commissioner (Appeals) and the Assessing Officer cannot be sustained. 11. Learned Departmental Representative relied upon the reasoning of the Assessing Officer and the learned Commissioner (Appeals). 12. We have considered the submissions of the parties and perused the material available on record. On a perusal of the impugned order passed under section 201(1), it leaves no room for doubt that the Assessing Officer by relying upon the report of the technical expert in case of Vodafone Essar Mobile Services Ltd., has concluded that the roaming services provided by other telecom operators are technical and managerial services, hence, charges paid towards such services is fees for technical services coming within the ambit of section 194J. It is ver....
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....ng services are provided by other telecom operators by using their existing telecom network/ infrastructure and no incremental investment is required to put up any additional network /infrastructure for provision of such roaming services. The aforesaid fact lends further support to the contention that roaming services are standard automated services, which are provided by other telecom operators to subscribers of VEL using the same network/infrastructure as is used by such operators for provision of telecommunication services to its own subscribers. Therefore, in essence, roaming services are similar in nature to the telecom services provided by a telecom operator to its own subscribers and hence roaming charges would partak e the same character as the normal telecommunication charges paid by a subscriber to its service provider. 4.11. We are not in agreement with the arguments of the Learned DR that the word „technical‟ used in Explanation 2 to Section 9(1)(vii) of the Act should take the same character of „managerial‟ or „consultancy‟ provided in the said section wherein human intervention is required and accordingly even for technical....
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....ry crucial for the disposal of the case under appeal as the examination of the technical experts had taken place post the proceedings before the Assessing Officer and as per the directions of the Hon‟ble Supreme Court, these statements were recorded in the case of the group company of the assessee. However, it is seen that the statement of Shri Tanay Krishna on 29.9. 2010 have been relied upon by the Learned CIT(Appeals) vide page 29 of his order but the cross examination of Shri Tanay Krishna is not in records of the lower authorities. We find that the statement is very much relevant for the disposal of these appeal s and are hereby admitted as additional evidence (in respect of cross examination statement of Shri Tanay Krishna on 29. 9.2010) in terms of Rule 29 of ITAT Rules as they go into the root of the issue. 4.13. We find that this issue need not be set aside to the file of the Learned Assessing Officer for seeking fresh technical evidences from experts as the same had already been obtained in the case of the group company of the assessee and CBDT had also issued Instructions in this regard to seek evidences. Any technical evidence obtained in a case can be us....
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....here can be instances when there is a problem in the call connect which may require resolution through human intervention. Question 6: Hence there is no 100% automatic operation of this network. Can you explain what kind of human intervention is required ? Ans. 6: Yes as I said earlier it can't be 100% fully automated. There are several circumstances under which human intervention would be required . I would briefly tell you about each of such circumstances - (a) There could be a case where there is failure in physical hardware. (b) There could be a problem due to software bug . (c) There could be snapping of fibre optic cables. In (a), (b), (c) above you are required intervention of teams of technical experts to remedy the situation. Question 16: Please tell us the places or points or areas where human intervention with each other? Ans. 1 6: As has been detailed in several answers that I have given earlier, one can broadly say that when there is an interconnection between two service providers, human intervention is constantly required for management of network/System, capacity enhancement and monitoring o....
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.... higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set-up? We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. 4.16. The next argument of Learned DR that roaming charges are paid for both interconnectivity and also for usage of transmission lines and human intervention is very much involved with regard to usage of transmission lines. We find that the human involvement is involved only when something goes wrong in the maintenance of transmission lines and for connectivity p....
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....present set of facts, it is not possible to equate the wheeling and transmission charges payable MSETCL with rent. On facts it is seen that the MERC order dated June 27, 2006, deals with MSEDCL's contentions, apropos the methodology proposed by MERC. The transmission charges contemplated by MERC includes the cross subsidisation of transmission charges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that a composite charge method for any such transmission was adopted. Thus, it is seen that the methodology for determining of the transmission tariff could not be determined in a mechanical manner as if the charge was only for use of the State transmission utility. The MERC while passing this order on transmission charges had received various objections some, inter alia, supporting the composite tariff, some against. However, we need not divert our attention to the details of pricing formula fin ally adopted. There is nothing on record to support the Revenue's con....
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....h is erroneous. The Revenue contends that the wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent the charge for permitting use of the State transmission utility by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to the licensees and consumers. In view of the above discussion, we are of the view that the wheeling and transmission charges are neither rent nor fees for technical services. Keeping the said interpretation into effect, we find that while interpreting the expression "rent" in the p resent scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. In our view, the transmission charges and/ or wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, no....
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....er Station(s) to the Bulk Power Beneficiaries and that the said Bulk Power Beneficiaries are desirous of receiving the same through POWERGRID transmission system on mutually agreed terms and conditions". This agreement provides that "POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment". In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in th....
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.... of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred eighty thousand rupees] : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, [(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, 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 ....
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....nes have been used rather than for the use of transmission lines per se. The payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of Section 194-I, the 'control' and 'possession', in legal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for....
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....stomer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons : (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the custome....
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....nalogy would apply with equal force in the case of transmission charges in telecom industry. 4.17. From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT v s Bharti Cellular Ltd ( 330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee‟s circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall....