Case Law Details
Brief: The Court, by referring the case back to the assessing officer, appears to have accepted the contention that only services rendered by humans can be regarded as a technical service. The ruling has particular significance for the technology sector where similar interpretation issues on tax ability of technical services are common. Further as held by the Court, in such cases technical evidence would be required for establishing that there was no human intervention involved in the process.
Citation: CIT, Delhi Vs. Bharti Cellular Ltd. (Civil appeal No. 6691 of 2010)
Court: Supreme Court
Facts
- · Bharti Cellular Ltd. (taxpayer) is a cellular service provider.
- · The taxpayer has entered into an interconnect agreement with BSNL / MTNL which allowed it to access the network of BSNL / MTNL (other cellular service providers) and vice versa. The agreement also referred to sharing of revenue between the parties.
- · The taxpayer pays interconnect / access / port charges to BSNL / MTNL under the agreement.
Issues before the Supreme Court
· Whether the charges were in the nature of fees for technical services and whether tax was required to be deducted by the taxpayer under section 194J of the Income-tax Act, 1961 (Act).
- · Whether the department was entitled to levy interest and penalty for non-deduction of tax at source.
Observations and Ruling of the Supreme Court
- · The Court observed that it was necessary to determine whether any human intervention is involved during the process when the facility is provided by BSNL/ MTNL and when the capacity allotted under the agreement is exhausted.
- · The words “technical services” have to be read in a narrower sense by applying the rule of Noscitur a sociis, particularly because the words “ technical services” under section 9(1)(vii) of the Act read with Explanation 2 come in between the words “ managerial” and “consultancy services”.
- · In view of technological advancements, it becomes imperative to take the evidence of technical experts at the fact finding stage to enable higher authorities / Courts to decide the legality of the case based upon factual foundations.
- · Since there was no expert evidence from the revenue to show that human intervention takes place where interconnection is provided by one service provider to another, the matter cannot be decided without technical assistance available on record.
- · The Court referred the case back to the assessing officer (TDS) and directed it to examine a technical expert and to decide the matter accordingly. The Court did not go into the issue as to whether the arrangement could be considered as a revenue sharing contract (and hence could not be regarded as fees for technical services) since the same had not been examined by the Tribunal.
- · The Court also directed the CBDT to issue directions to its officers that in such cases the department should not proceed only on the basis of the contract placed before them but should also go into technical details and examine technical experts.
- · The issue regarding levy of interest and penalty was held to be premature since there was no loss of revenue, as tax had been paid by the recipient and the question regarding tax ability of the charges had yet to be decided.
Key takeaways:- The Court, by referring the case back to the assessing officer, appears to have accepted the contention that only services rendered by humans can be regarded as a technical service. The ruling has particular significance for the technology sector where similar interpretation issues on tax ability of technical services are common. Further as held by the Court, in such cases technical evidence would be required for establishing that there was no human intervention involved in the process.
