Connectivity Charges Covered by TDS Section 194C, Not Section 194J: ITAT Chandigarh

H.P. State Co-operating Bank Ltd. Vs DCIT (ITAT Chandigarh)

Summary: ITAT Chandigarh allowed the appeal of H.P. State Co-operating Bank Ltd. for Assessment Year 2017-18 and deleted the TDS demand of Rs.21.15 lakh raised under Sections 201(1) and 201(1A) of the Income-tax Act. The dispute concerned connectivity charges of Rs.230.55 lakh paid by the assessee to service providers including Airtel and Reliance Communication. The assessee had deducted tax at source at 2% under Section 194C. The Assessing Officer, however, considered the payments to be fees for technical services and held that TDS was required at 10% under Section 194J. The resulting demand was confirmed by the CIT(A), leading to the appeal before the Tribunal.

The Tribunal noted that a similar demand against the same assessee for AY 2018-19 had already been decided by the CIT(A) in the assessee’s favour on 17.03.2023. In that decision, the CIT(A) had followed the Madras High Court decision in Skycell Communications Ltd. (252 ITR 53) and the Delhi High Court decision in Bharti Cellular Ltd. (175 Taxman 573) and concluded that such payments were covered by Section 194C rather than Section 194J because no human element was involved in rendering the services.

Finding the facts for AY 2017-18 to be pari materia with those of AY 2018-19, the Tribunal found no reason to adopt a different view. It observed that the services apparently did not involve any human element. The expression relevant to Section 194J covers managerial, technical or consultancy services, and the precedents relied upon had held that, without the requisite human element, the services would not fall within Section 194J. The Tribunal accordingly accepted the assessee’s treatment of the connectivity charges under Section 194C and deleted the impugned demand. The appeal was allowed.