Case Law Details
It was held that the payment of National roaming charges is not rent for the use of telecom equipments in accordance with Section 194-I of the Income-tax Act, 1961 (the Act) and accordingly not liable for deduction of tax at source.
Facts of the case
• The taxpayer is a Public Limited Company engaged in the business of providing mobile telephone services. The taxpayer entered into an agreement with IDEA Cellular Ltd. (IDEA) whereby a subscriber of a cellular network can also gain access to the services of any other network operators in their respective licensed area for a specific charge called as national roaming charge.
• The Assessing Officer (AO) noticed that the taxpayer had failed to deduct tax at source on payments made to other mobile service providers towards national roaming charge.
• The AO was of the view that payment of national roaming charge 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 1 94J of the Act and the taxpayer should have deducted tax from such payments.
• Alternatively, the AO held that the payment should be treated as being in the nature of hiring of plant and machinery and, therefore, section 194-I of the Act would apply, under which any payment of rent for the use of land, building, plant and machinery or equipment or furniture is subject to deduction of tax at source.
• Accordingly, the AO passed orders under Section 201 of the Act treating the taxpayer to be in default for non-deduction of tax at source.
Taxpayer’s contentions :- The national roaming facility is a standard facility which cannot be termed as rent for the use of any plant and machinery.
Tax department’s contentions :- The department relying on the decision of the Special Bench of the Delhi Tribunal in the case of New Skies Sattellites N.V v. ADIT [2009] 121 ITD 1 (Del) (SB) contended that when roaming facility is activated, the taxpayer controls the same through the equipment involved in the network, which would amount to use by the taxpayer of equipment within the meaning of Section 194-I of the Act.
Tribunal’s ruling
• The Tribunal observed that if assets mentioned in Section 194-I of the Act are ‘used’ by the payer then the consideration for the use is to be treated as rent and tax has to be deducted at source from the same.
• The Vodafone subscriber who is entitled to use the roaming service merely obtains a service from the other service provider; say IDEA or Airtel, with whom Vodafone has an agreement. IDEA or Airtel 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 taxpayer.
• Taxpayer is placed in a position of a mere facilitator between its subscriber and the other service provider, facilitating a roaming call to be made by the subscriber. Taxpayer cannot be said to have used the equipment which is involved in providing the roaming facility, it merely collects the roaming charges from its subscriber and passes it on to the other service provider.
• The service tax regulations and notification issued by Telecom Regulatory Authority of India refer to roaming facility as “services” and not “provision of equipments for use”.
• For the payment to be called as rent, the subscriber should be able to get the space which is earmarked for him. There is no space reserved or committed in the network equipment for the subscriber. Accordingly, the payment made as roaming charges cannot be considered as rent.
• The Tribunal relied on the decision of AAR in Dell International Services India (P) Ltd In Re [2008] 305 ITR 37 (AAR), wherein it was observed that the term “use” in relation to any equipment is not to be understood in the broad sense of availing of the benefit of an equipment but there must be some positive act of utilisation, application or employment of the equipment for the desired purpose.
• Reliance was placed on the Supreme Court decision in the case of Bharat Sanchar Nigam Limited v. UOI and others [2006] 282 ITR 273 (SC) wherein it was held that mobile telephony is a service. Accordingly, the Tribunal held that since mobile telephony is a service, roaming facility given to a subscriber as part of such service could not be considered as payment of rent for use of the assets belonging to another service provider.
• Relying on the Supreme Court decision in the case of State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd [2002] 126 STC 114 (SC) the Tribunal held that the effective control and possession of the equipment which provided the roaming facility was with the service provider and not with the taxpayer and therefore, the taxpayer was not using the equipment. Accordingly, the payment made by the taxpayer cannot be termed as rent.
• The Tribunal relying on the AAR decisions in the case of Isro Satellite Centre (ISAC) In re [2008] 307 ITR 59 (AAR) and Cable and Wireless Networks India P. Ltd., In re [2009] 315 ITR 72 (AAR) observed that the network or equipment owned by IDEA is merely accessed by the taxpayer’s subscriber through its mobile handset. It amounts to the provision of the roaming facility through the network or equipment owned, operated and controlled by IDEA and is not in the nature of payment for use or right to use equipment.
• Accordingly, the Tribunal held that the payment of roaming charges by the taxpayer to the other service providers cannot be considered as rent for the use of telecom equipments in accordance with Section 194-I of the Act and therefore, there was no liability on the part of the taxpayer to deduct tax from the same.
• However, on the alternative proposition of the tax department that the payment would constitute ‘Fees for Technical Services’ under Section 1 94J of the Act, the Tribunal restored the matter back to the AO.
Our Comments
This is a welcome decision by the Mumbai Tribunal wherein it has been held that payment of roaming charges by the taxpayer to the other service providers cannot be considered as rent within the meaning of the section 194-I of the Act and therefore, there was no liability to deduct tax from the same.
This decision will provide relief to the telecom companies since most of them have entered into a roaming agreement and since roaming charges are not to be considered as rent they are not required to deduct tax at source on such payments.
It is pertinent to note that since the Tribunal has remanded the case back to the AO on matter pertaining to Section 1 94J of the Act, roaming charges may still be considered as ‘Fees for Technical Services’ and tax may have to be deducted on the same.
SOURCE:- Vodafone Essar Limited Vs. DCIT (ITA No. 6058, 6059, 6060/Mum/2009) (Judgement date 22 December 2010 AY 2007- 08/2008- 09 and 2009- 10)
Mumbai bench of the Income-tax Appellate Tribunal
how will it be a relief to the assess..if not 194 I, TDS will be required to be deducted in 194 J…..