TDS U/s. 194J not applicable on roaming charges

Brief of the case:

In the case of Vofafone East Ltd. Vs. Addl. CIT Kolkata Bench of ITAT observed the applicability of various provision of TDS where tax was not deducted on the roaming charges paid by the Appellant to its telecom operators. Tribunal considered the applicability of section 194C, 194I, 194J etc. on the basis of agreement between assessee and other telecom operators.

Following issues were considered by ITAT in appeals:

• Applicability of section 194C, 194I & 194J
• Whether insertion of second provisio to section 40 (a) (ia) via Finance Act, 2012 is curative in nature.
• Whether payment of roaming charges to other service provider can be considered as rent or not?
• Disallowance of Interest on loans borrowed.

Applicability of section 194C, 194I & 194J

• Assessee is a subsidiary of Vodafone Essar Limited, engaged in providing Cellular Mobile Telephony Services (CMTS) in Kolkata Telecom Circle after receipt of approval from the Department of Telecommunications (DOT).
• The assessee has entered into roaming arrangements with other telecom operators which have been given licence to operate as telecom serv ice providers in other territories.
• The assessee incurred domestic roaming charges of Rs.55,41,01,320/- towards roaming facility provided by other telecom operato rs to the subscribers of the assessee
• AO initially proceeded to show cause the assessee for disallowance of roaming charges by invoking the provisions of section 40(a)(ia) r.w.s. 194C of the Act but later gave up and proceeded to section 194I /194J of the Act and made disallowance u/s 40(a)(ia).
• Action of AO was confirmed by CIT (A).
• Assessee contended that roaming means an arrangement whereby a subscriber of a cellular phone uses cellular services outside the home network and will get services from the host operator. For the said purpose assessee has entered into roaming arrangements with other telecom operators to make or receive calls when the subscribers move out of the licensed territory.
• Depending upon the usage of the subscriber and the arrangement between the Home Operator and Visiting Operator, Visiting Operator shall raise an invoice on Home Operator for such usage by the subscriber and Home Operator shall subsequently recover such charges from the subscriber.
• Pursuant to said roaming arrangements, VEL’s subscribers are able to make and receive calls while they are in the territory of such other telecom operator. In lieu of the services provided to VEL’s subscribers, VEL is under an obligation to pay roaming charges to the other telecom operator.
• AR argued that an identical issue was the subject matter of litigation before the Hon’ble Supreme Court in the case of CIT vs. Bharti Cellular Ltd reported in 330 ITR 239 (SC), wherein Court observed that the problem which arose in such cases was that there was no expert evidence from the side of the department to show how human intervention takes place, particularly during the process when calls take place , let us say, from Delhi to Nainital and vice versa.
• According to the Supreme Court, these type of matters could not be decided without any technical assistance available on record. The Supreme Court directed the Assessing Officer (TDS) in each case to examine a technical expert from the side of the Department and to decide the matter.
• Assessee assailed the impugned issue to prove that none of the provisions of section 194C, 194I and 194J of the Act are applicable in the facts and circumstances of the case.
• Revenue contended that no technology in world could survive without human intervention.
• The assessee pays roaming charges for services provided by the other operator (Visiting Operator) for connectivity of two mobile handsets while roaming.
• The roaming charges are paid for both interconnectivity as well as fo r usage of transmission lines. Revenue fairly conceded that for the interconnectivity charges, no human intervention is required. But he argued that for usage of transmission lines, human intervention is definitely required and hence TDS is applicable.
• Revenue argued that independent examination needs to be carried out with technical experts on the impugned issue and accordingly prayed for setting aside of the issue to the file of the Learned Assessing Officer.
• Question before tribunal is that whether the payment made by the home operator i.e. assessee to the host operator for roaming charges would come under the ambit of TDS provisions.
• ITAT held that roaming services are similar in nature to the telecom services provided by a telecom operator to its own subscribers and hence roaming charges would partake the same character as the normal telecommunication charges paid by a subscriber to its service provider.
• The issue need not be set aside to the file of the AO for seeking fresh technical evidences from experts as the same had already been obtained in the case of the group company of the assessee (Vodafone Essar Mobile Services Ltd.) and CBDT had also issued Instructions in this regard to seek evidences. The statement which have already been obtained is admitted as additional evidence under rule 29.
• The facts in the case of Vodafone Essar Mobile Services Ltd are identical with the facts of the assessee herein and also it happens to be the group company of the assessee.
• From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT v s Bharti Cellular Ltd ( 330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network.
• But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services.
• It is common knowledge that when one of the subscribers in the assessee’s circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service.
• Hence, Tribunal held without hesitation that hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act.
• As far as the applicability of provisions of section 194C are concerned, ITAT hold that the provisions of section 194C of the Act would become applicable only where some work (works contract) is being carried out and there is some human intervention involved in the carriage of such work .
• Regarding applicability of section 194I, payment of roaming charges by the asesssee to other service provider cannot be considered as rent within the meaning of section 194I of the Act.
• At the conclusion ITAT hold that the payment of roaming charges of Rs. 55,41,01,320/- does not fall under the ambit of TDS provisions either u/s 194C / 194I or 194J of the Act and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this account.

Whether insertion of second provisio to section 40 (a) (ia) via Finance Act, 2012 is curative in nature