M/s Tata Teleservices Ltd Vs. Income Tax Officer (ITAT Delhi)
Adverting to the second issue regarding non-deducting of TDS on payment of IUC, keeping in view the similar nature of charges, i.e., roaming charges paid, this Bench of Tribunal in the case of Bharat Sanchar Nigam Ltd. vs. Addl. CIT (ITA No. 920/Del./2017 (supra), the issue under consideration has been decided in favour of the assessee, observing as under :
“17. We have carefully considered the facts of the case and the material available on record and we find that the issue in dispute is directly covered by the decision of ITAT in case of Bharti Airtel Limited (supra). In that case co-ordinate bench of this court after deep examination of the issue i.e after considering and going through the process of providing roaming services; examination of technical experts and its cross examination and also opinion of Hon’ble the then Chief Justice of India Mr. S.H. Kapadia dated 03rd September 2013, has held that payment of IUC Charges is not “Fee for Technical Services” or “Royalty” within the meaning of its definition as per section 9(1)(vi) and 9(1)(vii) of the Act. While reaching the above conclusion the co-ordinate bench also took into consideration retrospective amendments made to section 9 by Finance Act 2012. Relevant head-notes of this decision as reported in (2016) 67 taxmann.com 223(Del) are reproduced below:
“Section 9 , read with sections 194J and 195, of the Income-tax Act, 1961, read with article 12 of Model OECD Convention – Income – Deemed to accrue or arise in India (Royalties and Fees for technical services) – Assessment years 2008-09 to 2011- 2012 – Assessee, as part of its International Long Distance (ILD) Telecom Services business, was responsible for providing services to its subscribers in respect of calls originated/terminated outside India – For provisions of ILD services, assessee was required to obtain services of Foreign Telecom Operators (FTOs) – ILD Operators were in turn billed by FTOs in form of Inter-connected Usage Charges(IUC) – There was no manual or human intervention during process of transportation of calls between two networks – This was done automatically, with human intervention being required only for installation of network which could not be said to be for inter-connection of a call – Assessee merely delivered calls that originated on its network to inter connection locations of FTO and FTO carried and terminated calls on its network – Whether thus payment of IUC by assessee to FTO in connection with its ILD telecom service business was neither FTS under section 9(1)(vii), nor royalty/process royalty under section 9(1)(vi) – Held, yes – Whether ever retrospective amendment in domestic legislation does not affect royalty definition under DTAA, hence retrospective insertion of Explanations 5 & 6 to section 9(1)(vi) also could not have altered this position – Held, yes [Paras 33, 44, 55, 56& 72][In favour of assessee]
Section 9 of the Income-tax Act, 1961, read with section 5 and article 7 of Model OECD Convention – Income – Deemed to accrue or arise in India (Business Profits) – Assessment years 2008-09 to 2011- 2012 -Assessee made payment of Inter-connected Usage Charges(IUC) to Foreign Telecom Operators (FTOs) in connection with its ILD telecom service business – Payment in question did not accrue or arise to ‘FTOs’ in India – Entire business operations were carried out outside India by FTOs – FTOs also did not have any Permanent Establishment in India – Whether thus no income could be deemed to accrue or arise to FTO’s in India and hence under article 7 also income could not be brought to tax in India – Held, yes – Whether further in absence of permanent establishment of FTOs in India, payment of ‘IUC’ to FTOs could not be deemed to accrue or arise in India under any of clause of section 9(1) read with section 5(2) – Held, yes [Paras 74 & 78][In favour of assessee]”
To the similar effect are other decisions cited by Ld AR. The Ld CIT(DR) has not been able to controvert the fact that the issue in dispute is no more res integra considering the above binding precedents. Moreover, a perusal of sample agreement for payment of IUC charges between BSNL and Cable & Wireless UK in the instant case also clearly shows that a standard facility for availing inter connectivity services while roaming was availed by the appellant in the instant case. This does not require any human intervention. Respectfully following the above judicial precedents, we hold that payment for IUC Charges is not chargeable to tax in India in the hands of the non-resident recipients and hence TDS was not deductible as per provisions of section 195 of the Act.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
All these appeals at the instance of assessee are directed against separate orders of the ld. CIT(A)-41, New Delhi dated 13.03.2015 for A.Yrs. 2007-08 to 2010-11 and dated 12.03.2015 for A.Y. 2011-12. The assessee has also moved stay petitions in all these appeals.
2. Since issue(s) involved in all these appeals are common and the assessee has raised common grounds, all the appeals were heard together and are, therefore, being disposed of by this consolidated order. For the sake of convenience and brevity, we take up the appeal in ITA No. 338/Del./2015 for A.Y. 2007-08 first. The grounds raised in this appeal read as under :
“A. That the Ld. CIT (A) grossly erred in holding that the Appellant was duty bound to deduct tax at source under section 194H from the discounts allowed to its distributors on bulk sale of starter kits and recharge vouchers (RCVs) under section 194H of the Income- tax Act, 1961 (‘IT Act’) and consequently hold it to be an assessee in default under section 201 of the Act.
i) That the Ld CIT (A) grossly erred in not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/credit to payee’s account and that the discount allowed is not payment/credit made to the Channel partners account;
ii) That the Ld. CIT (A) grossly erred in not appreciating that Section 194H would not apply as the discount allowed does not qualify as income chargeable to tax under the Act in the hands of the payee in the facts and circumstances of present case;
iii) That the Ld CIT (A) erroneously classified the discount given by the Applicant to its Channel Partners at the time of bulk sale of Starter Kits and RCVs as commission/brokerage;
iv) That the Ld. CIT (A) completely erred in holding that the principal-agent relationship existed between the Appellant and its Channel partners without appreciating that the starter kits/RCVs were sold in bulk on a principal to principal basis;
v) That the Ld. CIT (A) completely failed to appreciate that the goods sold in bulk to its channel partners have been accepted as a valid “sale” transaction by the Sales Tax/VAT authorities and hence the same could not be considered differently by the Tax Authorities;
vi) That the Ld. CIT (A) completely failed to appreciate the ruling of the Karnataka High Court passed in favor in Appellant’s own case where the Appellant’s facts as distinguished from other operators’ facts have been noted and it has been held that the Appellant was not liable to deduct tax under Section 194H. vii. That the Ld CIT (A) erred in not directing the Assessing Officer for allowing relief wherein payees have discharged appropriate taxes over their taxable income as declared;
B. That the Ld. CIT (A) grossly erred in concluding that the Appellant is an ‘assessee in default’ for alleged non deduction of tax at source under the provisions of Section 194 J of the Act on interconnect usage charges paid by the Appellant to other telecom operators;
i. That the Ld. CIT (A) completely failed to appreciate that there was no human intervention while concluding a successful call, for which alone payment was made by the Appellant to other operator,
ii) That the Ld. CIT (A) completely failed to appreciate the fact that no human intervention of the nature of managerial or consultancy services in any case was involved in providing interconnect usage charges;
iii) That the Ld. CIT (A) completely failed to appreciate that there was no use of equipment by the Appellant of the other operator and therefore, the payment made by the Appellant to the other operators would not be regarded as ‘Fee for Technical services’
iv) That the Ld CIT (A) complete y failed in appreciating that the payment for interconnection was for use by the other operator of a standard facility;
C. That the Ld. CIT (A) completely failed in appreciating that the Hon’ble Income Tax Appellate Tribunal, Jaipur Bench in ITA Nos. 309/JP/2012, 502, 503, 505 & 505/JP/2011 for the AYs 2006-07 to 2009-10 in the Applicant’s own case has held that the Applicant was not liable to deduct TDS on the discounts offered to the Channel Partners.
D. That the Ld. CIT (A) grossly erred in passing the impugned order in violation of the principles of natural justice by not granting an opportunity to the Appellant to independently cross examine the technical expert’s opinion on interconnect usage charges, if any, as directed by the Honourable Supreme Court in case of Bharti Cellular Limited
E. That the Ld CIT (A) erred in construing and relying on the cross-examination in the case of Vodafone West Ltd.
F. That the Ld. CIT (A) erred in not appreciating that as per the decision in CIT vs Bharti Cellular [2011] 330 ITR 239, examination and cross examination of expert had to be conducted in the facts/case of the Appellant and that the Appellant was to be granted an opportunity to adduce its evidence;
G. That the Ld, CIT (A) has grossly erred in ignoring the C.A. certificates available in respect of MTNL, Hutchison Essar and Tata Communication.
H. That the Ld. CIT (A) grossly erred in levying interest under section 201(1A) of the Act;
I. That the Ld. CIT (A) grossly erred in not considering the contentions and grounds raised by the Appellant.”
3. The common issues involved in all these appeals pertain to (i) the demand raised against the assessee under section 201(1) and 201(1A) of the Income Tax Act, 1961 on account of alleged failure of the assessee to deduct tax at source under section 194H of the Act, in respect of discount given to the distributors towards starter kits and recharge vouchers and (ii) the demand raised under section 201(1) and 201(1A), on alleged failure of the assessee to deduct tax at source under section 194J of the Act, in respect of payments made towards roaming service provided by other telecom service providers.
4. The brief facts of the case are that the assessee is engaged in the business of providing telecommunication services across the country. The assessee has been providing post-paid and pre-paid telecommunication services through various channel partners (Distributors) under the agreements entered between them. The modus operandi of assessee’s business is that it sells its products, i.e., Starter kits and pre-paid vouchers to distributors in bulk against advance payments. According to the assessee the starter kits and the recharge coupon vouchers are sold to its various distributors as per the terms of business agreements on principal to principal basis at a discounted price than MRP with the agreed rider that no product shall be sold at a price more than MRP and thus, such transactions are not liable for TDS u/s. 194H of the Act. According to the Assessing Officer, the discount, i.e., the difference between the MRP and the selling price, to the distributor amounted to payment of commission to the distributors which was liable to TDS u/s. 194H of the Act. The Assessing Officer further noticed that discounts on pre-paid SIM Cards/recharge coupons had already been held to be subjected to TDS as ‘commission’ within the meaning of section 194H. The Assessing Officer following the similar stand taken in the case of assessee for F.Y. 2004-05 and F.Y. 2009-10 and the decision of Hon’ble jurisdictional High Court in the case of Idea Cellular Ltd., 325 ITR 148, held the discounts allowed on Starter Kits liable to TDS and since the assessee failed to deduct the tax at source, held the assessee in default on this count, determining the total liability and interest thereon at Rs. 2,15,45,233/- u/s. 194H of the Act vide assessment order dated 30.03.2011.
5. Further, the Assessing Officer noticed that the assessee has paid roaming charges to other operators for using their network, but no TDS was deducted on such interconnect usage charges (IUC), being the fee for technical services, as per section 194J of the Act. The details of such payments, on which no TDS was made by assessee are as under :
