Income Tax Appellate Tribunal (ITAT) of Mumbai [2010- TIOL-789-ITAT-MUM] in the case of Vodafone Essar Ltd. (Taxpayer), a mobile service provider (MSP), on the issue of whether it is liable to withhold tax on national roaming charges paid to other MSPs held that such payments are not in the nature of ‘rent’ which attracts withholding tax under Section 194-I (Section) of the Income Tax Laws (ITL).

On the issue of whether such payments are, alternatively, in the nature of fees for technical services (FTS), liable to tax withholding under any other provision of the ITL, the Mumbai ITAT restored the matter to the Tax Authority for fresh adjudication in the light of the Supreme Court’s (SC) directions in the case of Bharti Cellular Ltd. Hi (Bharti ruling). In this ruling, the SC was concerned with the issue of applicability of withholding tax on interconnection charges paid by one telecom operator to another, on the basis that it constituted FTS. The SC, noting that FTS has been given a restrictive meaning by several High Courts (HC) and ITATs, had referred the matter back to the Tax Authority for fresh adjudication, by taking into account an expert’s opinion on whether any human intervention is actually involved in such transactions.


The ITL provides for withholding of tax from any payment, made to a resident, in the nature of ‘rent’ which is defined to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of certain specified assets, including machinery, plant or equipment.

The ITL also provides for withholding of tax from any payment to a resident by way of FTS which is defined to mean any consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel).


The Taxpayer made payments of national roaming charges to other MSPs without withholding tax for the tax years 2006-07 to 2008-09.

The Tax Authority held that the Taxpayer was an assessee-in-default as it failed to withhold tax. It took the view that the payments were in the nature of FTS or, alternatively, ‘rent’, both of which, incidentally, attracted withholding @ 10% (plus applicable surcharge and cess) during the relevant period.

On appeal by the Taxpayer, the first appellate authority upheld the Tax Authority’s view that the payments were in the nature of ‘rent’, attracting withholding tax. However, it did not decide as to whether the payments were in the nature of FTS.

Aggrieved by the first appellate authority’s decision, the Taxpayer appealed further to the Mumbai ITAT.

Whether payments were in the nature of ‘rent’, liable to withholding tax

Taxpayer’s contentions

In order to attract withholding tax as ‘rent’, the payment should be for ‘use’ of plant, machinery or equipment. The concept of ‘use’ of asset is distinguishable from availment of a standard service facility. Payment of roaming charges is for availing of mobile telephony services and cannot be characterized as ‘rent’. This is supported by the license agreement of the MSPs with the Government of India (G01) and the regulations of the Telecom Regulatory Authority of India (TRAI) which regard roaming facility as telecom service. The facility is also liable to service tax under the category of telecom service.

Reliance was placed on the SC decision in the case of Bharat Sanchar Nigam Ltd. [(2006) 282 ITR 273] for the proposition that a mobile phone subscriber does not intend to use any portion of the equipment used in providing the service and that the roaming arrangement is nothing but a contract to avail of the telephone service.

Among st others, reliance was also placed on the decisions of the Authority for Advance Rulings (AAR) in the cases of Dell International Services India (P) Ltd. [(2008)305 ITR 37] and ISRO Satellite Center  [(2008)    307 ITR 59] in the context of definition of ‘royalty’ which, inter alia, includes ‘use or right to use industrial, commercial or scientific equipment’. In the first case, the AAR held that monthly charges paid to an international telecom operator for use of bandwidth did not constitute ‘royalty’. They were merely service charges for availing of the facility of bandwidth connectivity and did not involve ‘use’ of the bandwidth network equipment by the payer. In the second case, the AAR held that payment for satellite transponder facility did not constitute ‘royalty’. The satellite was operated and controlled by the recipient of the transponder charges. Similarly, roaming charges are also paid for availing of telecom services from the Visiting Location MSP. The mobile network of the Visiting Location MSP is not ‘used’ by the payer. It is used by the Visiting Location MSP itself to provide telecom services to the payer’s subscribers.

Tax Authority’s contentions

The term ‘use’ referred to in the definition of ‘rent’ should be construed in a wide sense to include consideration paid under any agreement or arrangement for ‘use’ of any of the specified assets. Reliance was placed on the Delhi HC ruling in the case of United Airlines [(2006) 287 ITR 281]where the HC held that landing and parking charges paid by airlines to airports are in the nature of ‘rent’ because, as soon as the wheels of an aircraft coming into an airport touch the surface of the air field, the ‘use’ of the land of the airport begins. Reliance was also placed on the Andhra Pradesh HC ruling in the case of Krishna Oberoi [(2002) 257 ITR 105] where the HC held that room tariff paid to hotels, though not involving lease, sub-lease or tenancy, was, nevertheless, in the nature of ‘rent’ in view of the wide definition of ‘rent’.

Reliance was also placed on the Special Bench (SB) ruling of the Delhi ITAT in the case of [(2009)] 121 ITD 1] which held that payments by television channel companies to satellite companies for uplinking and downlinking television signals through satellite transponders constituted ‘royalty’ being paid for use or right to use the process of the transponders. While interpreting the term ‘use’, the SB had laid down the propositions that: (i) The context has to be kept in mind. (ii) The understanding of that term in the trade circles of that particular business activity should be considered. (iii) The development in the field of technology should be taken into account. Applying these tests, the roaming charges can be considered to be paid for ‘use’ of the mobile network equipment of the Visiting Location MSP.

Mumbai ITAT’s ruling

The ITAT held that the payments for roaming charges cannot be characterized as ‘rent’, attracting withholding tax under the Section. The ITAT adopted the following reasoning for its conclusion:

The term ‘use’, however widely construed, needs to be distinguished from the availment of service. To take a simple illustration, when a person gives a piece of steel rod to the owner of a lathe to turn and grind it, it is the owner of the lathe who uses the lathe for turning and grinding the steel rod. The person paying the owner for the service of turning and grinding of the steel rod cannot be said to have ‘used’ the lathe. Similarly, roaming charges are consideration for availing of telecom services provided by the Visiting Location MSP. Neither the Taxpayer nor its subscribers were granted ‘use’ of the Visiting Location MSP’s mobile network equipment.

The Central Board of Direct Taxes (CBDT) has itself clarified VIDE CBDT Circular No. 715 dated 8 August 1995 that ‘rent’ is something which is paid for an earmarked premise. In a roaming facility, no space in the network equipment is reserved or committed for the subscriber.

The service tax laws, the Taxpayer’s telecom license agreement with the GOl and TRAI regulations also support that cellular mobile telephone is looked upon as a service and not as use of any equipment that can be considered as ‘rent’.

The AAR ruling in the case of Dell supports that the word ‘use’ in relation to any equipment is not to be understood in the broad sense of availing of the benefit of the equipment, but it indicates that there must be some positive act of utilization, application or employment of the equipment for the desired purpose, which is lacking in the context of roaming charges.

The HC rulings in the cases of United Airlines and Krishna Oberoi merely support that the scope of the term ‘use’ cannot be restricted to an arrangement similar to lease, sub-lease or tenancy. In both these cases, there was actual physical use of the asset viz., hotel room and airport land by the taxpayers. These rulings do not deal with the issue as to when a person making the payment can be considered to have used the asset.

Even in terms of the SB ruling in the case of New Skies Satellites, the conclusion one can reach is that roaming charges are paid for availing of services. With advancement of technology, it is possible to enjoy more facilities on a remote basis. In every such case, it cannot be considered as ‘use’ of the equipment by the person enjoying the facility or service. The application of the AAR rulings in the cases of Dell and ISRO Satellite Center also lead to the same conclusion that the subscriber is merely enjoying the standard facility/service provided by the Visiting Location MSP through mobile network equipment operated and controlled by it.

Whether payments were in the nature of FTS, liable to withholding tax

The Taxpayer contended that what is rendered by other MSP5 is merely a service or a facility and not a technical service as no human intervention or interface was involved. Therefore, the impugned payments are not in the nature of FTS.

On the other hand, the Tax Authority contended that, since the payment is made for technical service rendered by the other MSP5 to the Taxpayer, these are in the nature of FTS, attracting withholding tax.

In the light of the Bharti ruling, the ITAT set aside this issue and returned it to the Tax Authority for fresh consideration, having regard to the SC’s directions to consider an expert’s opinion on whether any human intervention is actually involved in such transactions.


The scope and coverage of ‘rent’, having regard to its wide definition, has been a subject matter of debate. The present ruling provides guidance that, despite its wide coverage, the emphasis is on ‘use’ of specified assets, which needs to be distinguished from availment of service. It supports the view advocated by taxpayers that, availing a standard facility provided by a service provider by using advanced technological equipment, does not fall within the scope of ‘rent’, attracting withholding tax under the Section.

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January 2021