TaxTMI 
TaxTMI 
2020 (3) TMI 1187
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.... scrutiny and the AO passed assessment order u/s 143(3) of the Act determining the loss at Rs. 668,46,63,980/-after making disallowance of Rs. 13,04,59,145/- u/s 40(a)(ia) for non deduction of TDS on roaming charges and Rs. 57,24,22,930/-on discount extended to prepaid distributors. The assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee deleted both the disallowances. The revenue is in appeal against the said findings of the Ld. CIT(A). 2. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. "On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in holding that no disallowance u/s 40(a)(ia) can be made for non-deduction of tax at source on payment of "roaming/interconnectivity charges" amounting to Rs. 13,04,59,145/- by the assessee to other telecom operators as it is not in nature of "fee for technical services" and provisions of section 194J of the Income Tax Act are not applicable to these payments. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 57,24,22,9....
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.... Vodafone South Ltd. [2016]72 taxmann.com. The operative part of the order passed by the Ld. CIT(A) reads as under:- "4.2. So far as the second ground of appeal challenging the disallowance of roaming charges of Rs, 13,04,59,145/- under section 40(a)(ia) of the IT Act due to non-deduction of tax at source is concerned, it is seen from the assessment order that the AO was of the opinion that the roaming services were in the nature of technical services and the appellant was required to deduct tax at source under section 194J of the IT Act because even though the process of carriage of calls is fully automatic and no human intervention is involved, there is element of human intervention at the time of set up, monitoring, fault identification etc. Thus, the process of carriage of calls cannot Lake Place unless the systems are made operational or maintained or configured by the service provider manually. The appellant has made a detailed submission on the issue. In this regard, it is seen that the issue is covered in favour of the appellant by the following decisions:- Dishnet Wireless Ltd. v. Dy. CIT (TDS) [2015]154 ITD 827/60 taxmann.com 329 Chennai Bench o....
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....ne Essar Mobile Services Ltd. Further, the Assessing Officer has not given any opportunity to the assessee to cross-examine the technical expert. For these reasons alone, the demand raised cannot be sustained. Even otherwise also, as brought to our notice by the learned Authorised Representative, identical issue relating to applicability of the provisions of section 194J to inter-connectivity / roaming charges was examined by the Tribunal, Kolkata Bench, in case of Vodafone East Ltd., ITA no.1864/Kol./2012 and Ors., dated 15th September 2015. The Bench, after examining the technical report obtained in case of another company in the group viz. Vodafone Essar Mobile Services Ltd. observed that if the facts are similar, there is no need to set aside the issue to the Assessing Officer for obtaining a fresh technical report in case of the assessee. After analysing the technical report from the expert, the Bench found that the roaming / inter-connectivity services provided by other telecom operators is through standard automated services with the aid of existing network / infrastructure used by such operator for providing telecommunication services to their own subscribers. Hence, roamin....
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....r Technical Services (FTS) and hence would not fall in the ambit of section 194J of the Act. We find that on further appeal by the revenue to the Hon‟ble Supreme Court in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC) , the Hon‟ble Apex Court had stated that "right from 1979 various judgments of the High Courts and Tribunal have taken the view that the words "technical services" have got to be read in the narrower sense by applying the rule of nosci tur a sociis, particularly , because the words "technical services" in section 9(1)(v ii) r.w. Explanation 2 comes in between the words "managerial and consultancy services". We find that the principles laid down by the Delhi High Court have been accepted by the apex court as such and the Apex Court has merely directed the TDS officer to carry out factual verification to determine the extent of human involvement. Based on this direction, the CBDT had al so issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12. As per the directions of the Supreme Court in the case of CIT vs Bharti Cellular Ltd in 330 ITR 23....
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....ion 4: Can you enlighten us about the functioning of the network system of the cellular operators at the time of receiving or providing inter-connect services to each other including installation, interconnectivity etc from the very beginning? Ans. 4: As regards to interconnect to Gateway switches/ MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases - i) Planning phase- where how much capacity required and how much traffic hand ling capacity is required on these basis hard ware and software is determined. ii) Selection of vendor - is done to determine who will provide these services along with his consultancy. iii) Hardware and software is supplied by the vendor and it is customized to the need of the network as per the TEC specifications. iv) Installation as per vend or guidelines - it involves installation of both hardware and software. v) Call configuration/provisioning o f system - in this the opera tor has to configure and make provision in data base as to how the calls will flow. This has to be....
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....travels automatically. In establishment of a call, therein no human intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only when the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another? No, as stated above, no human intervention is required in the process of carriage of calls. However, 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. Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the interconnect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you b....
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.... "By this appeal, the Revenue has proposed the following questions to be substantial questions of law:- "(a) Whether, on the facts an d in t he circumstances of t he case and i n law, the Income Tax Appellate Tribunal was justified in holding that the payments of the wheeling and transmission charges made by the assessee to the entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (P GCIL) for the use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and, consequently, the provisions of section 201 and section 201(IA) could not be applied? (b) Without prejudice to the above, whet her, on the facts and in the circumstances of the case and in law, payment of wheeling and transmission charges to the entitles like MSETCL and P G CIL, should have been treated as fees for technical services and tax should have been deducted at source under section 194J of the Act from the payments? " He submitted that in the case of Chhattisgarh State Electricity Board no appeal h ad been filed by the R....
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....ling charges" entails distribution of electricity in the area of the corporation and they cannot be subjected to provisions of section 194-1 of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertake n by it, as a result of the restructuring of the Maharashtra State Electricity Board. It is pertinent to mention here that section 62 of the Act provides that the Commission may, in the case of supply of electricity fix a maximum ceiling of the tariff, in an attempt to promote competition amongst the distribution licensees. Thus, the very concept of the charge for transmission electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence, it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the principles of conceptual interpretation to the tariff to be fixed for the wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the MSEDCL which will be availing of the s....
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....t ax at source- Fees for professional or technical services (Transmission charges)- Assessment Year 2012-13- Whether, where assessee paid wheeling, scheduling and transmission charges to State power utility for using its distribution net work to sell energy generated by assessee to end consumers and same did not involve any human element, assessee was not required t o deduct TDS under section 19 4JHeld, yes [Para 6] in favour of assessee. c) DCIT vs Delhi Trans co Ltd reported in (2014) 52 taxmann.com 261 (Delhi - "This finding has been followed by the ITAT in ITA No. 3965/ Del/2011 in the case of assessee for Assessment Year 2006-07. Apart from the finding of tribunal recorded in the assessee‟s own cases, we deem it pertinent to take note of the finding recorded by the tribunal in the case of Chhattisgarh State Electricity Board -vs.- ITO (supra) (2012) 50 SOT 33 (Mum.)- No further appeal to High Court by Department. The relevant finding read as under : "11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that "power shall be made available by t....
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....by other bulk power beneficiaries, is transmitted through these transmission lines. The way it works is like this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or power grid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the Act. 12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194-I of the Act, and analyze the same. Section 194-I....
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....ficer, which has been sustained in the first appeal, is that since expression "rent", for the purpose of Section 194 I, includes "any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement" for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 194-I come into play on the facts of this case. 14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194-I. 15. Explanation (i) to Section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement "for the use of" land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, th....
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....efit from an asset, we may usefully refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. v. Asstt. Commr. of Commercial Taxes [2001] 124 STC 426 (Kar.), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168, in the following terms: "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by ....
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....being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. ......." 17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Sec....
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....elating to human intervention in assessee's case is similar to the facts in case of Vodafone Essar Mobile Services Ltd. However, after analysing the report submitted by the technical expert Shri Tanay Krishna, in case of Vodafone Essar Mobile Services Ltd., who incidentally also submitted the report in case of Bharti Cellular Ltd., and the cross-examination of Shri Tanay Krishna, the ITAT, Kolkata Bench, has found that the roaming / inter connectivity services are rendered automatically without any human intervention. It is evident from the order passed under sections 201(1) and 201(1A), that the Assessing Officer relying upon the technical report obtained in case of Vodafone Essar (Supra), has raised the demand against the assessee inferring that roaming charges ware in the nature of fees for technical services, hence, coming within the purview of section 194J. However, as stated earlier, the very same report from the technical expert in case of Vodafone Essar Mobile Services Ltd., was considered and analysed by the Tribunal, Kolkata Bench (supra) and the Bench held that there is no human intervention in providing the roaming services. That being the case, following the observatio....
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....red to deduct tax at source on payment of roaming charges in terms of section 194J. In view of the aforesaid, we quash the demand raised under sections 201(1) and 201(1A). 6. Since this issue is covered in favour of the assessee by the decision of the coordinate Bench of the Tribunal in assessee's own case for the assessment year 2009-10 to assessment year 2012-13 and since there is no change of material facts in the present case, the Ld. CIT(A) has rightly followed the decision of the coordinate Bench and decided this issue in favour of the assessee. Hence, respectfully following the decision of the coordinate Bench aforesaid, we dismiss this ground of appeal of the revenue and direct the AO to delete the addition made on account of disallowance u/s 40(a)(ia) of the Act. 7. Vide ground No 2 the revenue has challenged the action of the Ld. CIT(A) in holding that the assessee was not required to deduct tax at source u/s 194 in respect of payment of the discounts allowed to its prepaid distributors on sale of starter kits and prepaid recharge vouchers and further directing the AO to delete the disallowance made under section 194H of the Act. As pointed out by the Ld. counsel, t....
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....he parties and perused the material available on record in the light of the decisions relied upon by the learned Authorised Representative and the learned Departmental Representative. As could be seen, the Assessing Officer has treated the assesses as assessee in default alleging non-deduction of tax at source under section 194H, on the reasoning that it has paid commission to the distributor for selling the pre-paid sim card /starter kit and recharge vouchers However, on a perusal of the facts on records, it is noticed that though the assessee has fixed an MRP on the starter kits / pre-paid sim card and recharge vouchers but that is only for the purpose of allowing margin to the distributors, The assessee does not sell the starter kit pre-paid sim card to the distributors at the MRP but at a lesser price. The distributor is permitted to sell the starter kit / pre-paid sim card to the retailer/ consumers after retaining his margin but under no circumstances. the distributor can charge over and above the MRP. For example, if the MRF of the starter kit is Rs. 100/-, the assessee sells it to the distributor at Rs. 80/- and the distributor can sell it to the retailer or customer for a ....
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....issue in assessee's own case discussed above and since the revenue has not pointed out any material change in the facts of the present case, we find no reason to interfere with the findings of the Ld. CIT(A). Hence, respectfully following the decision of the coordinate Bench rendered in assessee's case discussed above, dismiss this ground of appeal of the revenue and direct the AO to delete the addition made on account of disallowance u/s 40(a)(ia) of the Act. ITA No. 1060/MUM/2019 (Assessment Year: 2013-2014) The facts of the present case are almost similar to the facts of the assessee's own case for the assessment year 2012-13 aforesaid. However, the revenue has raised one new ground in the present appeal. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 56,26,04,030 under section 40(a)(ia) of Income Tax Act, 1961 and holding that the assessee was not required to deduct tax at source u/s 194H in respect of payment of the discount allowed to its prepaid distributors on sale of starter kits and....
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....nt paid for purchase of 3G spectrum and restricting the allowance to Rs. 62.89 crores being proportionate amount as applicable for the year as per provisions of section 35ABB of the Act is concerned, it is seen from the submission of the appellant that the issue is covered in favour of the appellant by the decision of the jurisdictional Tribunal in the case of Idea Cellular Limited (in ITA 360/Mum/2016) wherein the Hon'ble Tribunal has held that the assessee has rightly claimed depreciation on the fees paid for acquisition of 3G spectrum. Relevant extract of the judgment is reproduced as below:- "20. From the above judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) and the facts of the present case, it is clear that the assessee has rightly claimed depreciation under section 32 of the Act on 3G spectrum. It means that the expenditure towards 3G spectrum is not expenditure for acquiring any right to operate telecomminications services. Out of the service areas in which 3G spectrum was won by the assesses, it bad acquired the rights so operate telecommunication services in the year 1995-1997 for Maharashtra, Gujarat, Uttar Pradesh West, Madhya Pra....