NOVANET INDIA PRIVATE LIMITED ,MUMBAI vs. ITO WARD WARD 15(2)(1), MUMBAI

a) On the facts and under the circumstances of the case and in law, the learned CIT(A) erred in passing order u/s 250 by merely relying on adverse order passed u/s 201 by a Subordinate officer without appreciating the fact that order passed u/s 201 is a pending subject matter of appeal before CIT(A) b) On the facts and under the circumstances of the case and in law, the learned CIT(A) erred in passing adverse order u/s 250 on basis of order u/s 201 which thereby taxes the appellant u/s 112, a capital gain section instead of any TDS section under chapter XVII.

a) On the facts and under the circumstances of the case and in law, the entire re-assessment u/s 147 is purely based on conjectures and surmises without any concrete evidence b) On the facts and under the circumstances of the case and in law, the leaned CIT(A) erred passing an adverse order by treating purchase of minutes from foreign party as a technical service by merely relying on Union Carrier Services Agreement without passing a speaking order as to why the same would fall within the definition of technical service u/s 9(1)(vii) and without providing any justification to the reasons submitted by the appellant.

The assessee is a company and engaged in the business of rendering Voice over Internet Protocol (VoIP) services to clients in India. VoIP is a technology that allows the user to make voice calls using internet connection instead of the regular or analog phone line. Under the VoIP technology voice signals are converted into digital data which is then transmitted over internet and uses a public network Novanet India Private Ltd.

The AO did not accept the submissions of the assessee. The AO further relied on the proceedings initiated under section 201 of the Act where it has been held that the exact nature of the transaction remained unverified. The assessee submitted a copy of the Unilateral Carrier Services Agreement (UCSA) which defines the terms of engagement between the assessee and NSPL. The AO after perusing the agreement and the other details furnished by the assessee held that NSPL is providing technical services which taxable in India and that the tax ought to have been deducted on the said payments. The AO further held that the assessee Novanet India Private Ltd.

Aggrieved the assessee filed further appeal before the CIT(A) who upheld the order of the AO by holding that “5.3.0 I have gone through the grounds of appeal, assessment order and Statement of facts submitted by the appellant. In this case, separate proceedings was initiated against the appellant under sec. 201 of the Act wherein a demand of Rs. 53,00,415/- was raised on the assessee. In the said proceedings, the concerned officer has concluded that assess liable to deduct tax at source on payment made to Novanet Singapore Pte. Ltd. The concerned officer has observed that 'the exact nature of transaction remained unverified.

3.1 In the present appellate proceedings, it was submitted that during the relevant year instead of buying the said minutes from other operators the appellant bought the same from the Singapore entity which had relationships with major global telecom companies. Thus it is very clear that appellant was not securing orders in India for NSPL since it already has existing business in India along with complete technology infrastructure and required telecom license to conduct the business for which it procured VoIP minutes.

3.2 During the course of assessment proceedings, the appellant vide letter dated 14.4.2023 has submitted audit report, P & L account, Balance sheet, computation of income, 26AS, Unilateral Carrier Service Agreement, order u/s. 201 of the Act. The AO observed from the Unilateral carrier services Agreement submitted by the appellant during the course of assessment proceedings that the Singapore Entity is providing technical services to the assessee and the payment made thereon partakes the character of fee for technical services.

3.3 In view of the above and after perusal of the Unilateral Carrier Services Agreement and order under sec. 201 of the IT Act passed by the concerned officer for the violation of the provisions of TDS on payment made to NSPL, I am of the opinion that no interference is required in the assessment order. Hence, the addition is upheld and the ground No. 2 and 3 are dismissed.”

The ld. AR submitted that NSPL was incorporated only in the year 2012 whereas the assessee is incorporated in the year 1997 and that the assessee has Novanet India Private Ltd.

The ld. DR on the other hand relied on the order of the lower authorities. Novanet India Private Ltd.

We heard the parties and perused the material on record. The issue arising in this appeal for our consideration is whether the amount paid by the assessee to NSPL toward purchase of VoIP minutes is to be treated as FTS and accordingly tax deductible under the Act. Before we proceed to adjudicate the impugned issue, we will understand the VoIP technology and the nature of billing done for usage of VoIP i.e. based on VoIP minutes. VoIP is a technology in which calls are made using the internet connection instead of traditional telephone lines. VoIP converts the voice into a digital signal which is sent in digital packets through internet and these packets gets arranged to be reconverted at the receiving end. A typical example of VoIP is the calls using WhatsApp. VoIP communication can be done using a public internet services such as Airtel, Jio etc. where the issues may arise due to poor connectivity and also there is a risk of data protection. Therefore the big companies, who have huge requirement for uninterrupted and secured communication link, enter into agreement with internet service providers for a dedicated VoIP services i.e. where the network is dedicatedly made available to the customer. If the companies have international operation then the service provider procures the VoIP network from various suppliers across the globe and sells the same to the customer. The assessee is one such service provider who procures the VoIP network from various carriers across the globe and sells the same to the customers in India. As per the submissions of the assessee, instead of the assessee obtaining the VoIP from various international carriers across the globe, NSPL was formed to consolidate the procurement and to manage the various suppliers. In other words, NSPL buys and sells the VoIP network among various international customers including the assessee. The billing for using VoIP network is done for the bandwidth and the usage i.e. VoIP minutes. This is similar to the billing of traditional phone lines where the customer is billed for the minutes Novanet India Private Ltd.

Now coming to the issue of whether NSPL is providing any technical service to the assessee by procuring and selling the dedicated VoIP network. It is relevant to note here that the VoIP is a fully automatic process with no human intervention i.e. the conversion of voice in to digital data, transmitting data packets through optimum routing, and reconverting into voice at the receiving end etc. The role of NSPL and for that matter even that of the assessee is to ensure that the customer who has bought the dedicated VoIP network is provided with the same. NSPL is not involved in the technology of VoIP but acts as an intermediary to obtain the network services and sell the same to the customers. Therefore it cannot be said that NSPL is providing any technical services to the assessee by procuring and selling the VoIP network. There are judicial precedences as relied on by the assessee where it has been held that when there is no human intervention and process is carried out through a fully automated software, then there is no FTS. Considering unique nature of business of providing VoIP network to the customers, we are of the view that NSPL cannot be said to be providing any technical service to the assessee and therefore the payment made by the assessee cannot be treated as FTS. Further NSPL does not have a PE in India and that no technical services are made available to the assessee. Accordingly we hold that the payments made by the assessee to NSPL towards VoIP are not taxable in the hands of NSPL in India and therefore the assessee is not liable to deduct any tax on such payments. We direct the AO to delete the disallowance made under section 40(a)(ia) of the Act.

In result, the appeal of the assessee is allowed