Payment of IUC Charges is not “Fee for Technical Services” or “Royalty”

Bharat Sanchar Nigam Ltd Vs ACIT (ITAT Delhi)

ITAT Delhi held that payment of IUC Charges is not “Fee for Technical Services” or “Royalty” within the meaning of its definition as per section 9(l)(vi) and 9(l)(vii) of the Act. Accordingly, disallowance u/s 40(a)(ia) on account of non-deduction of TDS unjustified.

Facts- The appeal has been preferred by the Assessee against order of CIT(A) arising out of an appeal before it passed under section 143(3)/ 148 of the Income Tax Act. Assessee contested confirmation of disallowance u/s 40(a)(ia) of the Act alleging that relationship between the Appellant and its distributors/ franchises is that of principal agent and accordingly, the discounts extended by the Appellant to its distributors/ franchises are in the nature of ‘commission’, liable for deduction of taxes under Section 194H of the Act.

Further, assessee also contested disallowance u/s 40(a)(ia) on account of alleged non-deduction of TDS on IUC/ international roaming charges payable to Non-resident Telecom Operators by treating the same to be in the nature of ‘royalty’ under provisions of section 9(1)(vi).

Conclusion- It is not in dispute that the assessee has riot deducted tax at source. As per third proviso to S.194H which is inserted by the Finance Act, 2007, no deduction need to be made on any commission or brokerage paid by BSNL to its Public Call Office franchisee, and this proviso was held to be clarificatory in nature by the Hon’ble Punjab and Haryana High Court in the case of CIT v. Bharat Sanchar Nigam Ltd. [2013] 35 taxmann.com 260/216 Taxman 277.

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